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President's Private Sector Survey on
Cost Control: Report on Research and
Development

President's Private Sector Survey on Cost
Control, Washington, DC

1983

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PRESIDENT'S

PRIVATE SECTOR SURVEY
ON COST CONTROL

REPORT ON

RESEARCH AND DEVELOPMENT

APPROVED BY THE SUBCOMMITTEE FOR THE
FULL EXECUTIVE COMMITTEE, WINTER 1983

BIBLIOGRAPHIC INFORMATION

PBS 4-17 3269

President's Private Sector Survey on Cost Control: Report on
Research and Development.

1983

PERFORMER: President's Private Sector Survey on Cost

Control, Washington, DC.

The report represents the results of the Research and
Development Task Force of the President's Private Sector
Survey on Cost Control in the Federal Government. The Report
on Research and Development contains major recommendations
which, when fully implemented, could result in three-year,
cost sav.ings of $45,07 4 billion, including $32,984 billion
in savings and revenue opportunities contained in other
PPSSCC Reports. It should be noted, however, that some of
the recommendations may require several years for the
savings to be realized. While all facets of Research and
Development could not be surveyed in the time allotted,
areas selected for review were considered to offer
significant potential for cost control and improved
efficiency.

KEYWORDS: *Cost control, *National government.

Available from the National Technical Information Service,
Springfield, Va. 22161

PRICE CODE: PC E05/^F AOl

PRESIDENT’S PRIVATE SECTOR SURVEY ON COST CONTROL

REPORT ON

RESEARCH AND DEVELOPMENT

APPROVED BY THE SUBCOMMITTEE FOR THE
PULL EXECUTIVE COMMITTEE, WINTER 1983

For sale b,v the Superintendent of Documents, U.S. Government Printing Office
Wnshlngton, D.C. 20402

THE PRESIDENTS PRIVATE SECTOR SURVEY ON

January 20, 1984

The Honorable Ronald Reagan
President of the United States
The White House
Washington, D.C.

Dear Mr. President:

The following Report represents the results of the Research
and Development Task Force of the President's Private Sector
Survey on Cost Control in the Federal Government. The Task Force
was chaired by William F. Ballhaus, President, Beckman Instru-
ments, Inc.; Karl D. Bays, Chairman and CEO, American Hospital
Supply Corp.; James L. Ferguson, Chairman and CEO, General Foods
Corp.; David Packard, Chairman, Hewlett-Packard Co., and Edson W.
Spencer, Chairman and CEO, Honeywell, Inc., with Eugene E. Yore
serving as Project Manager. The report culminates the combined
efforts of 30 individuals who devoted extensive pro bono work to
the PPSSCC initiative. A list of all Task Force members is
enclosed with this letter.

The Report on Research and Development contains major recom-
mendations which, when fully implemented, could result in three-
year cost savings of $45,074 billion, including $32,984 billion
in savings and revenue opportunities contained in other PPSSCC
Reports. It should be noted, however, that some of the recom-
mendations may require several years for the savings to be
realized. While all facets of Research and Development could not
be surveyed in the time allotted, areas selected for review were
considered to offer significant potential for cost control and
improved efficiency. The importance of the accompanying recom-
mendations rests on the fact that they represent the potential
for better utilizing finite resources available to the Federal
Government .

Clearly, other opportunities for cost savings and revenue
generation exist but, due to limited time and personnel re-
sources, they could not be pursued. Several are suggested for
further review because they offer future potential savings and
revenue opportunities.

On behalf of the Co-chairs and Task Force members, I would
like to express our deep appreciation for the opportunity to have
been of service to you and the members of your Administration.

Respectpjlly ,

J. Peter; Grace

Chairman, Executive Committee

1330 K Street. N.W. • Suite 1150 » Washington, D.C. 20C06
(202) 466-5170 - »

FORCE MEMBERSHIP

CO-CHAIRS

William F. Ballhaus
president

Beckman Instruments ^ Inc.

James L. Ferguson
Chairman and Chief
Executive Officer
General Foods Corp.

Edson W. Spencer
Chairman and Chief
Executive Officer
Honeywell, Inc.

PROJECT MANAGER

Dr. Eugene E. Yore
Corporate Director, Design
Automation
Honeywell, Inc.

DEPUTY PROJECT MANAGER

Steven Malevich
Manager, Emerging
Issues Program
Beckman Instruments, Inc.

TASK FORCE MEMBERS
Ronald H. Abrahams
R. Glenn Affleck
Dr. Walter R. Beam
John L. Bilangi
Sarah Messengale Billock

Karl D. Bays
Chairman and Chief
Executive Officer
American Hospital Supply Corp.

David Packard
Chairman of the Board
Hewlett-Packard Co.

American Hospital Supply Corp
Hewlett-Packard Co.

Sperry Electronic Systems
American Hospital Supply Corp
American Hospital Supply Corp
Hewlett-Packard Co.

Clyde F. coombs, Jr.

TASK FORCE MEMBERS (CONT'D)

James L. Copenhaver

Stuart N, Davidson

Walter Donner

Maurice E. Esch

Stephen P. Hirshfeld

Grace M. Holden

Linda K. Holt

George A. issac. III

John W. James

Virginia L. Jamison

Donald A, Klein

Ralph E. Lee

Edward j. Marteka

Thomas H. Morton

Oksana Orel

William T. Ryan

August Schellhammer

William G. Schmick

Roger N. Schmidt

Stephen S. Thaxton

Sam D. Walker

Florence M. Zeller

Honeywell, Inc.

Beckman Instruments, Inc.
Beckman Instruments, Inc.
Honeywell, Inc.

Honeywell, inc.

Independent

Common Sense Management Inc.
Touche Ross & Co.

Beckman Instruments, Inc.
Independent
General Foods Corp.
Hewlett-Packard Co.

American Hospital Supply Corp.
General Foods Corp.

Beckman Instruments, inc,
Beckman Instruments, Inc.
Vought Corporation
Hewlett-Packard Co.

Honeywell, Inc.

American Hospital Supply Corp.
General Foods Corp.

Independent

PRESIDENT’S PRIVATE SECTOR SURVEY ON COST CONTROL

REPORT ON

RESEARCH AND DEVELOPMENT

APPROVED BY THE SUBCOMMITTEE FOR THE
FULL EXECUTIVE COMMITTEE, WINTER 1983

PREFACE

. On June 30 r 1982, President Reagan signed Executive Order
12369 formally establishing the President's Private Sector Survey
on Cost Control (PPSSCC) in the Executive Branch of the Federal
Government. An Executive Committee under the chairmanship of
J. Peter Grace was established, consisting of 161 high-level
private sector executives--roostly chairmen and chief executive
of f icers--f rom many of the nation's leading corporations.

Briefly stated, the President directed the PPSSCC to:

o Identify opportunities for increased efficiency and
reduced costs achievable by executive action or
legislation.

o Determine areas where managerial accountability can be
enhanced and administrative controls improved.

o Suggest short- and long-term managerial operating
improvements.

o Specify areas where further study can be justified by
potential savings.

o Provide information and data relating to governmental
expenditures, indebtedness, and personnel management.

The Executive Order also provided that "the Committee is to
be funded, staffed and equipped ... by the private sector
without cost to the Federal Government." To implement this
objective, the Foundation for the President's Private Sector
Survey, on Cost Control was established. It formed a Management
Office which organized thirty-six "task forces," each co-chaired
by two or more members of the Executive Committee, to do the
"preliminary reports."

Twenty-two of these task forces were assigned to study
specific departments and agencies, and the remaining fourteen
studied functions cutting across Government such as personnel,
data processing and procurement. In addition to individual task
force reports, the Survey Management Office has issued a series
of reports on selected issues. Apart from the Executive Committee,
in its official capacity, none of the task force members had any
authority to make recommendations to departments and agencies or
to the President.

A listing of the thirty-six task forces follows:

Agriculture .
Air Force

Autmeted Data Procesaing/Office Automation

Boardi/Cononissiona-Banking
Boarda/Coianiasiona-Buaineaa Related

Commerce

Oefenae-Office of Secretary
Education

Eneroy (including F*d«r*l Enurgy Regulatory
CoBBtiiaiion and Nuclear Regulatory
Cosdnission)

Environaiental Protection Agency/Small
Buaineaa Adminiatration/Federal
Boergency Hanagememt Agency
federal Construction Management
Federal Feeding
Federal Hospital Management
Federal Management Systems
Financial Asset Management

Health & Human Services-Department Management/
Human Development Services /ACTION

Health a Human Services-Public Health
Service/Health Care Financing
Administration . , «

Health a Human Services-Soexal Securxty
Administration
Housing a urban Development
Interior
Justice
l#abor

Land, Facilities and Personal Property
Low Income Standards and Benefits
Havy

Personnel Management
Privatisation

Procurement /Con tract s / Inventory
Management

Real Property Management

Research and Development

State/AID/USIA

Transportation

Treasury

User Charges

Veterans Administration

Each of the 36 task forces prepared a draft report and, with
a few exceptions, an appendix, supporting the recommendations
contained in the task force report. Those appendices
at the Department of Commerce's Central Reference and Records
inspection Facility. It should be noted that recommendations
relating to any one federal agency may be included not only i
the appropriate agency task force report but also in the repor s
of the functional cross-cutting task forces.

It is important to note that cost savings, revenue, and cash

acceleration opportunities in this report may (.r"' ThL

dollar opportunities reported in other task ^®^ce report . '

there may be instances of double counting of dollar opportunities
between task force reports. These duplications will be netted-
out in the Final Summary Report to the President. Additionally,
dollar estimates in this report are based on reasonable and _
defensible assumptions, including standard three-year projections
based on when first, second, and third year partial or ful
implementation will occur and not specific fiscal years.
Accordingly, estimated savings or revenue opportunities are^
understandably .of a "planning" quality and not of a budget
Quality. Therefore, the reader should guard against drawing
conclusions or making dollar projections based on the disclosures
contsin^d .only in this rsport*

A glossary of terms used in categorizing PPSSCC-identif ied
opportunities follows.

o Cost Savings include:

Cost Reduction - reduction of budget

expenditures, generally
ongoing

Cost Avoidance - avoidance of cost for

anticipated but unbudgeted
expenditures, generally
ongoing

0 Revenues include;

Revenue Enhancement -

Revenue Acceleration -

increased receipt of existing
or new revenues, generally
ongoing

sale of fixed asset for cash,
generally one-time

o Cash Acceleration
includes :

improvement of the cashflow,
generally by accelerating the
cash inflows and/or
decelerating the cash outflows.
Generally ongoing, but may be a
one-time occurrence.

The standard three-year projections of cost savings and
revenues include 10% inflation in Years 2 and 3. On revenue
accelerations and cash accelerations, savings are claimed on the
interest avoided which is estimated at 10%. These rates reflect
generally prevailing rates at the time the Task Force reports
were prepared and may be adjusted, as necessary, in the Final
Summary Report to the President.

In addition to identifying specific opportunities for cost
control and improved efficiency, PPSSCC sought to identify the
appropriate implementation authority for each recommendation.
Because of the complexities of the appropriations process, as
well as historical precedents, however, further data could result
in a change in the PPSSCC-identif ied authority.

All of the PPSSCC reports were considered and acted upon in
a meeting open to the public by a Subcommittee of the Executive
Committee of PPSSCC r along with other statements and recommenda-
tions. Written comments submitted by the public, if any, have
been forwarded to the White House along with the final PPSSCC
reports. In addition to individual reports, the PPSSCC Executive
Committee will adopt a Final Summary Report to the President,
summarizing the scope of its individual task force recommenda-
tions and offering general conclusions and advice. This Summary
Report is tentatively scheduled for release in late Fall.

TABLE OF CONTENTS

Page

Number

EXECUTIVE SUMMARY

THE REPORT RECOMMENDATIONS — A PERSPECTIVE
I. INTRODUCTION

II. ISSUE AND RECOMMENDATION SUMMARIES

R&D 1:

Strategic Planning

R&D 2:

R&D Management and the Budget Process

R&D 3:

Privatization

R&D 4:

Improved Management of Resources in
Federal Research Laboratories

R&D 5:

Administration of Research Grants
to Universities

R&D 6:

Research Program Reporting

103

R&D 7:

NASA Cost Reporting

113

R&D 8:

Compendium of Selected R&D Issues

118

SUMMARY

LIST OF RECOMMENDATIONS AND SAVINGS

127

COST CONTROL OPPORTUNITIES FOR FURTHER STUDY

130

IV.

TABLE OF EXHIBITS

Exhibit

Title

Page

Number

I-l

Intersectoral Transfers of Funds Used
for Performance of Research and
Development, 1982

1-2

Total R&D Budget; Percent Distribution

1-3

Federally Funded R&D by Performer,
FY 1983

1-4

Federal Obligations for Basic and Applied
Research by Category, FY 1983

1-5

DOD R&D Budget by Service; Percent
Distribution

II-l

Strategic Planning

II-2

Summary Table; Five Federal Goals

Compared to Basic Industry Criteria
for Establishing Effective Goals

II-3

FY 1983 Budget Process

II-4

FY 1983 R&D Federal Budget Detail

II-5

Congressional Staff Size 1947-1980
(Personal and Committee Staff)

II-6

Congressional Staff Size (R&D Oversight
Committees )

II-7

Federal Employment Compared to Congres-
sional Staff Size

II-8

Relative Percentage of Scientists and
Engineers Employed in R&D by Sector;
Nature of R&D by Sector

II-9

Number of Federal Research Labs and
Percent of Total Operating Costs;
Percent of Total Research Lab Operating
Costs, by Agency

II-IO

Trends in Total Federal R&D Budgets and
Federally Supported University Research

II-ll

Source of R&D Funding and Type of R&D
Performed at Universities

' Jj '' K

T&RT.R OP EXHIBITS (CONT*D)

Page

Exhibit

Title

Number

11-12

Federal Obligations for Research &

Development to the 100 Universities
and Colleges Receiving the Largest
Amounts, by Agency: FY 1980

11-13

Distribution of University RiD Support
Among Major Federal Agencies

11-14

Differences Resulting from NSF's
Redefinition of Grant Procedures

11-15

R&D Issues Covered in Other Reports

120

IV- 1

Institutions Having the Greatest Number of
Publications in Coal Gasification

140

IV-2

Sonv Corp. Technology (Patent Activity)
Lofile for Years 1971 to 1980 Using
U^S. Patent Office Classification System

142

IV-3

Number of Scientific Papers Produced by
Federal Laboratories

143

IV-4

Quantitative Comparison of Two Multi-
Disciplinary Programs

145

Table

Title

Page

Number

II-l

History of Indirect Cost Rates Paid
by NIH

92 •

II-2

Trends in Average Amount Awarded for NIH
Traditional Research Project Grants;
Fiscal Years 1970-1982 in Terms of
1970 Dollars

II-3

Federal Obligations for Research in the
Physical and Environmental Sciences
by Agency and Detailed Field of
Science: FY 1983

104

II-4

National Marine Pollution Program Funding
by Agency and Categories in FY 19bi

108

TABLE OF EXHIBITS (CONT*D)

Figure

II-l

II-2

Title

DOD (Army) Organization Chart
$2 Billion Industrial R&D Firm

Page

Number

EXECUTIVE SUMMARY
AND

PERSPECTIVE

EXECUTIVE SUMMARY

FEDERAL RESEARCH AND DEVELOPMENT

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RESEARCH AND DEVELOPMENT OVERVIEW

Research and development (R&D) in the Federal Govern-
ment is conducted primarily by five =

account for 93.2 percent of the total FY 1983 R&D budget of
$44.3 billion. These agencies are the Department of De-
fense (DOD)» National Aeronautics and Space Administr
(NASA), Department of Energy (DOE), Department of Health
and Human Services (HHS), and National Science Foundation
(NSF). The R&D funded by these agencies is conducted by
industrial firms (52 percent), Government laboratories (24
percent), universities (11 percent), ^e'^erally funded re-
search and development centers (9 percent), and others (4
percent). There are over 700 laboratories employing more
than 206,000 personnel which conduct the 24 percent of
R&D performed in-house.

OVERALL PERSPECTIVE

The Task Force was favorably impressed with the high
quality of R&D managers in the Federal Government . e

NOT REPRODUCIBLE i ” o

Presidential appointees, senior executives and R&D civil
servants. They are skilled and work very hard at RiD man-
agement. Open and cooperative attitudes with interest in
improvement were prevalent. Yet within this overall en-
vironment, some very important problems were found and a
great deal of room for improvement was identified. Speci-
fically, the Task Force identified the need for agency top
management to become much more actively involved in es-
tablishing the specific goals for R&D in terms which are
clear, precise, and measurable. Also, this lack of di-
rection to substantive aspects of R&D and a budget process
which severely inhibits the management process combine to
create a system which cannot establish program priorities
and which results in a great deal of program instability.

ISSUES AND RECOMMENDATIONS

The Task Force selected eight issue areas to survey
and formulated recommendations which, when fully imple-
mented, could result in three-year cost savings and revenue
generation opportunities of ^45.1 billion. One of the
eight is a compendium of R&D issues from 14 other task
force reports. This compendium issue incorporates 97 rec-
ommendations with $33 billion in three-year cost savings
and revenue generation opportunities. In the other seven
issue areas surveyed, the Task Force formulated 25 recom-
mendations which, when implemented, could result in three-
year savings opportunities of $12.1 billion.

It should be noted, however, that some of, the recom-
mendations may require several years for the savings and
revenue to be realized. While all facets of R&D management
could not be surveyed in the time allotted, areas selected
for review were considered to offer significant potential
for , cost control and improved efficiency. The importance
of the accompanying recommendations rest on the fact that
they represent the potential for better utilizing finite
resources available to the Federal Government.

Strategic Planning — R&D management suffers from a
lack of clearly defined goals. Existing planning efforts
do not establish priorities for R&D programs, cannot elim-
inate marginal programs, and do not serve as a base for
operational management. Most existing plans are com- •
pendiums of pet projects derived from lower levels in the
organization and do not reflect a coherent approach to
meeting specified goals within the constraints of available
resources. Specific Task Force recommendations to al-
leviate the above findings would result in three-year cost
savings of $7,300 million. These recommendations include;

O focusing efforts by top management on the devel
opment of clear, measurable' statements of R&D
goals in their respective agencies;

o developing systems necessary to translate the
goal s?atlmeiits into complete plans; and

o committing to the use of the strategic plans to
guide the operations of each agency.

RSD management and the Budget Process — ~ The budget
orocess^seS trobtain funding for the "kTu programs is too

?Smbersome and time consuming. . ^'?^®®;^®^^t^growth^ex-

ninq period is a factor in the significant Jtowth ex

perienced in R40 .programs. For example, i^ual

KMrinoh for DOD. NASA and DOE in terms of 1,822 individual
projects creates tremendous burdens on ^he agencies and
LeLes a situation which invites micromanagement. To

?emldy these deficiencies, the Task

following actions, which wou-ld account for $3,670 milli
in savings opportunities over three years:

o Implement multiyear budgeting specifically for

R&D activities.

o use a budget activity structure that signifi-
cantly reduces the current level of detail
required for R&D programs.

o Shorten the budget cycle.

o Reduce technical staff positions in R&D agencies.

Prii^zation — in its review of R&D activities, the
Task Force was that there

fo orivatize Federal. R&D efforts. Other task forces sug
g«?erptiJate funding for the fifth shuttle, Pti^tising
?hrNational Fertiliter Development Center, and setting DOD
labs out of advanced development work on weapon systems-
The DOE Task Force recommended that the Government cease
finding I«ivUies that do not fiV^^^in the framework of
Federal responsibilities for R4D, including the Clinch
River Breeder Reactor. In the view of the Task Force, a
iiiiiotined analysis of privatization opportunities would
ii the iiiiiificatlon of billions of dollars in
potential savings.

Management of federal R4D Laboratori« —
oraMirA cites the *over ^UU Federal Ki.u labs,, whicn are

integral part of the Government R&D program. This .

integral oercent of the operating costs are used

b^the^l^e^labs with^more than 100 employees. The other

600 "labs" are small facilities, two-thirds of which have
fewer than 25 employees. In reviewing some of the major
labs, the Task Force found some with outdated facilities
and equipment, all with personnel problems, and no formal
system for evaluating the laboratories' contribution to the
agency's program(s). The Task Force makes seven recommen-
dations to improve the labs' performance, including greater
use of "centers of excellence," a concept which concen-
trates research resources to achieve a critical mass in
selected areas. Savings opportunities of $506.4 million
over three years were identified.

Administration of Research Grants to Universities —

An increasing percentage of the money going to universities
to conduct research for the Federal Government is used to
cover the indirect costs of the research. The largest ele-
ments of these indirect costs are the three administrative
components (departmental administration, general and admin-
istration, and sponsored project administration). Past
efforts to negotiate an approach to handling these cost
elements have not been entirely successful and have result-
ed in a system which is a major burden to the universities
and a major area of contention between the two parties.

The Task Force recommends that the Government and the
universities negotiate a fixed rate beneficial to both
parties to reimburse these costs. Because of the reduced
burden this would place on the universities and because of
a fixed limit on this element, the Task Force estimates
savings opportunities of $387.9 million over a three-year
period.

Research Program Reporting — The Task Force found
that current efforts at reporting ongoing research efforts
were incomplete and that the system which processes the
data, the National Technical Information Service, did not
have the tools to expand the reporting. Three-year savings
opportunities of $225 million would occur if:

o use of the data base were made mandatory, and

o requirements were implemented to ensure research
performers supplied the information.

NASA Cost Reporting — Space project cost data
reported by NASA was found to be significantly understated
since NASA does not include Civil Service and other es-
sential cost elements in its reporting. Recommendations
have been made for over ten years to expand the project
management and reporting systems to cover these costs. The
Task Force believes that NASA's reasons for these omis-
sions are inadequate and recommends that all project costs
be managed and reported in the same system. No specific
savings opportunities were identified with this management
improvement recommendation.

IMPLEMENTATION

Of the 25 major recommendations formulated by the Task
Force, 18 (72 percent) are entirely within the purview of
the Executive Branch and 7 (28 percent)
sional approval. (Implementation authority for the 97
recommendations covered by the compendium issue is
eluded in the individual Task Force reports.) All of the
recommendations dealing with strategic planning can be
implemented within Executive Branch authority. Because of
the nature of the recommendations dealing with
ment and the budget process, Congressional approval
required. Most of the other recommendations can be imple-
mented within the Executive Branch.

SUMMARY

Task Force's recommendations focus on overall
management rather than its detail. Economic benefits
associated with those recommendations are believed to be a
conservative evaluation of what the nation might gain i
Federal R&D management assumed a more businesslike approach.
If all of the people involved concentrate their efforts on
overcoming the problems that have been identified^ other
benefits, whose value is hard to quantify but which surely
must be measured in additional billions, will accrue to the
American economy and society.

THE REPORT RECOMMENDATIONS — A PERSPECTIVE

As the product of an unprecedented and wide-ranging
survey performed in a political atmosphere by private sector
executives and specialists, the recommendations in this Task
Force report must be placed in perspective. Our volunteer
staff had the formidable task of bringing its expertise to
bear on complex Federal operations in the short span of a
few months while holding down other full- or part-time
employment.

Despite these challenges -- most of which were antici-
pated at the outset — valuable analysis and isisue develop-
ment were achieved. The recommendations contained in this
report will result, if implemented, in real and significant
savings and other benefits to American taxpayers whose hard
work and personal sacrifices financially support these
Federal programs and operations.

We believe that the majority of our recommendations
are fully substantiated* However, it would be misleading
to allege that each and every recommendation is rooted in a
uniformly high level of research, analysis and substantia-
tion. Various time limitations, business resources, and
other constraints did not permit achievement of the desired
uniformity objective.

We have evaluated, therefore, the "supportability" of
the recommendations on their management merits and have
grouped them into the following three categories.

o Category I -- Fully substantiated and defensible.

Recommendations in this category are,
in the opinion of the Task Force,
convincing and deserving of prompt
implementation.

o Category II — Substantially documented and support-
able . Recommendations in this cate-
gory may not be fully rationalized or
documented in the report, but all
indications point to the desirability
and defensibility of proceeding with
their implementation.

o Category III — Potentially justifiable and support*

able. Recominendations in this cate-
gory» while meritoriouSf are not
regarded as fully supported in the
report^ due to tiitie» personnel
resources# and other constraints# but
are deemed worthy of further analysis
to determine the full extent of their
merit.

These category descriptions do not take into account
pQ^^^ical# social or economic conditions whicph may alter the
supportability of these recommendations for implementation.
Accordingly# it is possible# by grouping the recommendations
along the above categories# to assess more effectively the
cost savings that can be expected. This analysis permits
summary estimates of firm# probable and potential savings.

The Report Recommendations -- An Assessment

Based on the above perspective and categorization, an
assessment of the reported recommendations is contained in
the matrix on the following page.

vii

•nirw-YMr Cost Saviixjs iSI/Revenue |R)/
CiKh Accvl«*ration.(CM Onwrlunitios 1/
($ millitmsl

viii

I. JNTRODUCTION

I, INTRODUCTION

Federal Research and Development

Total research and development (R&D) in the United
States is approaching the $80 billion level. As shown in
Exhibit I-lr the funding level in 1982 was $77.3 billion
with $74.6 billion coming from industry and Government in
almost equal proportions (industry-funded, 49.8 percent;
Government-funded, 46.7 percent). A substantial amount of
the Government funding of R&D is transferred to industry
($17.8 billion) and universities ($6.95 billion)
actual conduct of the R&D. Thus, while industry funded an
estimated 49.8 percent of the national R&D effort in 19o2,
it performed 72.1 percent of the total R&D. Government,
in contrast, funded 46.7 percent of the 1982 effort, but
only performed 12.9 percent.

Federal Government efforts in R&D have three broad
objectives :

o to perform R&D for the Government’s own use,
i.e., to achieve the mission of the various
Federal agencies;

o to provide a strong science and technology base
for the nation, its development and educational
programs; and

o to expedite commercial exploitation of tech-
nology and ensure a strong economy.

<jhe Federal Government has two major responsibilities
with respect to meeting national needs through R&D:

to provide a climate for technological innova-
tion that encourages private sector R&D invest-
ment, and

to focus R&D support on areas with significant
potential benefit to the nation, but where the
private sector is unlikely to invest adequately.

(Exhibit I-l on the following page]

lnU«rscctuidt T>aw5>crs of fXimts Used hw IVttormance ol
ttesearch aiid Devclutwiunt. i9Bj test.. iwilTionsot donars)

The Federal Government will spend approximately $44.3
billion for the conduct of R&D in FY 1983. 1/ Exhibit
1-2, on the following page, shows the breakdown of that
amount by principal agencies. The Department of Defense

(DOD) accounted for more than half (56 percent) of the
Government funding for R&D. The National Aeronautics and
Space Administration (NASA) and the Department of Energy

(DOE) account for another 25.7 percent. The remainder of
the R&D budget (18.3 percent) comes from the Department of
Health and Human Services (HHS), the National Science
Foundation (NSF), and the other agencies.

The Office of Science and Technology Policy (OSTP),
established within the Executive Office of the President in
1976, is involved in overall Government R&D. This Office
had a budget in FY 1983 of $1.84 million and 12 full-time
permanent positions. OSTP's responsibilities include;

o advising the President on science and technology
considerations related to the economy, national
security, foreign relations, health, energy,
environment, resources and other related matters;

o evaluating the Federal effort in science and

technology and recommending appropriate action
on it;

o advising the President on science and technology
considerations in the Federal budget and working
with the Office of Management and Budget (0MB)
on the review and analysis of R&D items in the
budgets of all Federal agencies; and

o assisting the President in coordinating the R&D
programs of the Federal Government.

As such it is primarily involved in macro-policy matters
and does not, in 'general, get actively involved in the
direction of the individual R&D programs. Its primary
concerns focus on the supply of engineering and scientific
manpower to support technology development; cooperation
between the basic research efforts of the Government,
universities and industry; and the basic thrusts of over-
all science and technology efforts.

(Exhibit 1-2 on the following page)

1/ The estimate of $44.3 billion for Federal R&D is

“ derived from the official FY 1983 budget documents.

This figure differs with the figure shown in Exhibit
I-l ($36,125 million), which came from an NSF publi-
cation (NSF Report 82-319). Although the discrepan-
cies cannot be fully reconciled, they are probably
due to definitional and reporting inconsistencies.

Exhibit 1-2

TOTAL R&D BUDGET

$3.0

L.O

TOTAL « $44.

B9I $4.1

S4.S

Billion

$6.6

The Government has mote than '’00 laboratortes^

under e^enrSf airFedetaUy'funded RSD is

S";d°;iLam;ra?ly (wi^in

Fe5e?illi%Snded"L««c!; ^fJ^f^J'SKStions^ucfL

remainder IS performed gov«nmentl and by

universities, by . .. , 5^ on the following page,

‘?ni??s'?hr5fsrrtiut?fn1f%^di;a?;y^5unded PSD by
performer .

„„

ences

(e.g., biology) ^ $13.3 bil-

35.7 percent Of research in FY 1983. About $3.2

billion" of 2^rpercent, -ences (f f !^piysics )

rur"==ouSrror$2‘8 biiuon, or 21.5 percent of the total
budget. “U

The following is a more detailed overview of each of
the principal agencies expending RSD funds:

n.p.rtment of Befense - f “ '“"ftioMl^def ense“l«ces
« support the "?^“»if^°neS's««egU and «ctical ^
‘ra°po^^ -d T "s stem.^^

rerenfe’Rt^ <rnc5S^?ig^^^srLr ^a ^ ^-3

Representing a 19 ^,-,rrervi?: ("mR!°Ur Force and

SIR?5r-nRfmUtRR^If -e , research agency

Defense R&D budget by Service.

[Exhibits 1-3, 1-4 and 1-5 on the following pages]

President’s Budget, FY 1984, Appendix.

Exhibit 1-3

FEDERALLY FUNDED R&D BY PERFORMER,
FY 1983 (estimated)

($ billions)

Total = $43.0, Excluding
$1,3 for R&D
Facilities

Source;' National Science Foundation, Federal Funds for

Research and Development, Fiscal Years 1981, 1982
and 1983.

♦Federally Funded Research and Development Centers (FFRDCs)

♦♦Other: FFRDCS Run by Industrial Firms 3.0% ($1.4)

Other Non-Profit Institutions 3.0% ($1.2)

FFRDCS Run by Non-Profit Institutions 1.0% ($0.6)

Foreign Governments 0.6% ($0.3)

State and Local Governments 0.4% ($0.2)

Exhibit t-4

FEDERAL OBLIGATIONS FOR BASIC JWD APPLIED RESEARCH BY CATEGORY^
— FY 1983 (estimated;

($ millions)

•o

wi m
CD o
.4J u

. 9 c
a CD
^ E
moo
s u cn

♦ o

ki c
O 0)
-C-H
O

O CA

<0
•H

o -
0 o

tn CO

o ^

U to

•H ^

> c
coo

U E CO

«H to
to o
o u

•H C
to o

>|-H

X o

•H

•o

•H

a CO

-o

•H

M-l

•H

•M

O' O'

c c

•

W-H

Cit

•H

•

0 o

•H u

••

(fM

n9 CO

Exhibit T-«;

POD FY 1983 R&D BUDGET BY SERVICE
($ billions)

SOURCE: Office of Management and Budget, FY 1983 Budget.

Defense R&D program areas
tions are as follows:

and FY 1983 budget obliga-
($ millions)

Technology Base

Advance Technology Development
Strategic Programs
Tactical Programs
Intelligence and Communications
Program Management and Support
Other Appropriations
R&D Facilities

$ 3,288
928
6,520
7,524
2,675
2,849
685
366

Total obligations

^24.835

The R&D expenditures of DOD, in addition to providing
for the defense of the country, have many impacts in the
private sector. The work on the very high speed integrated
circuits (VHSIC), which is included in several of these R&D
'Categories, will have direct impacts on civilian technology
products. In the past, the Government-funded B-52 R&D was
in part responsible for the commercial Boeing 707 airplane.

National Aeronautics and Space Administration —
Government investment in R&D through NASA has the objective
of yielding new space technologies to improve the long-term
scientific and technological strength of the nation. Over
$6.6 billion, or 14.9 percent of the Federal R&D budget, is
obligated for FY 1983 to meet that objective. This repre-
sents about an 11 percent increase over FY 1982 obliga-
tions. Over 52 percent of NASA's R&D budget will go to the
Space Transportation Systems (STS) program. The main com-
ponents of that program are the development, testing and
procurement of the Space Shuttle fleet and continued pro-
curement of the second Space-lab. STS and other NASA R&D
programs are funded as follows:

($ millions)

Program

1983 Estimate

Space transportation system
Space science

Space and terrestrial applications
Aeronautical research and technology
Space research and technology
Energy technology
Tracking and data acquisition
Research and program management

$ 3,468
682
320
232
123

509

1,179

Total conduct of R&D
R&D facilities

Total obligations

116

Department of Energy — DOE R&D has the objectives of
(a) developing new energy technologies, (b) improving
existing technologies, and (c) developing a better under-
standing of high energy physics and nuclear sciences.

About $4.8 billion, or 10.8 percent of the total Federal
R&D budget, will go toward achieving these -

This includes $220 million for R&D sponsored by the Nuclear
Regulatory Commission. V

Health and Human Services — R&D funding for HHS in
FY 1983 is projected at $4.1 billion, or 9.3 percent o e
Federal R&D budget. This represents about a 3 percent
increase over FY 1982 obligations. Over 85 percent of hhs
R&D funds are obligated by the National Institutes of
Health (NIH), which conducts R&D in the following areas.

o life processes in health and disease,

o clinical research,

o antiviral drugs,

o diabetes,

o epidemiology, and

o toxicology.

FY 1983 obligations by HHS major R&p activities are as
follows:

Health:

millions)

National Institutes of Health
Alcohol, Drug Abuse and Mental Health
Administration

Food and Drug Administration

Centers for Disease Control

Health Care Financing Administration

Office of Assistant Secretary for Health

Health Services Administration

Special Foreign Currency Program

$ 3,533
289

Subtotal

$ 4,023

\/ DOE R&D functions were proposed for transfer to the
" Department of Commerce (DOC) under the name of the

EnerQy Research and Technology Administration (ERTA).
This has not yet occurred. Therefore, DOE R&D figures
in this Report include those attributed to the Depart-
ment of Commerce, ERTA, in budget literature for FY 1983

Human Services:

Office of Human Development Services
Social Security Administration
Departmental Managemertt

Subtotal

Total conduct of RSD

R&D facilities

Total obligations

$ 59

25
16

100

,123

Jdl

National Science Foundation — NSF's share of the FY
1983 R&D budget is $1.0 billion, or 2.2 percent of the
total R&D budget, which represents a 7.5 percent increase
over FY 1982.

NSF obligations are primarily used to support basic
research in all scientific disciplines through grants to
scientists and engineers associated with academic insti-
tutions. The NSF R&D objective is to complement basic
research programs of agencies such as DOD and NIH.

Task Force Methodology

During its review of the Federal R&D process, the Task
Force addressed seven major issues:

o Strategic Planning,

o R&D Management and Budget Process,

o Privatization,

o Management of Federal R&D Laboratories,

0 Administration of Research Grants to Universities,
o Research Program Reporting, and

o NASA Cost Reporting.

These issues were selected for study because:

o They represent the largest potential cost savings

of all issues surfaced.

o They require the highest level support to obtain
resolution.

o They are fundamental or underlying causes of many
problems identified but not resolved by past
studies.

In addition to these seven issues, the Task Force prepared
a compendium of R&D issues included in the other PPSS Task
Force reports.

The nature and extent of the problems related to R&D
management were substantiated during personal interviews
with Presidential appointees and other key agency manage-
ment personnel. Further information was gained by inter-
viewing officials from 0MB, the General Accounting Office,
OSTP, and other selected sources.

A literature review of prior reports and past studies
on the issue was also conducted. In all, 414 personal
contacts were made and 104 significant past studies
examined.

In reviewing Federal Government R&D, we contacted the
major agencies including DOD, NASA, DOE, HHS (including
NIH), NSF, Department of Agriculture, DOC, Department of
Transportation, and the Environmental Protection Agency.
Individual issues used the results of the data collected
from subsets of these agencies. They are identified in the
methodology sections of the appropriate issue.

Significant Contributions

We acknowledge the significant contributions of the
Co-chairmen of the R&D Task Force: William Ballhaus

(Beckman Instruments); Karl Bays (American Hospital
Supply); James Ferguson (General Foods); David Packard
(Hewlett-Packard); and Edson Spencer (Honeywell). These
individuals devoted a good deal of time and personal atten-
'tion to reviewing and guiding the study. We also acknowl-
edge the significant contributions of the R&D Task Force
members on temporary assignment in Washington, D.C. Our
PPSS Management Field Officer O.T. Berkman and Desk Officer

Robert Pikul contributed thoughtful and helpful guidance.
Sfhla eiceptional administrative support under the super-
vision of Linda Holt#

A number of persons in the various ?orL^r'

tacted and interviewed in the course of the Task ®

assessment of Federal R&D. The area of be

perspective of those interviewed varied widely,
expected, but the spirit of cooperation and
universal and outstanding*. Agency officials
vided data and supporting <?o®“>^®?tation that greatly
assisted our efforts. Their attitude and support were
ical to the success of the PPSS effort.

we specifically thank NASA for providing office space
conducive^to the Task Force work and NSF for 3”

gathering statistical data, references, and other informa

tion.

We would also like to acknowledge the time and contri-
butions of private sector persons who helped
own private sector administrative model. We have listed
these contributions in Section V.

E. ISSUE AND RECOMMENDATION

SUMMARIES

\3sc<-'

II.

ISSUE AND RECOMMENDATION SUMMARIES

RESEARCH AND DEVELOPMENT
R5.D 1; STRATEGIC PLANNING

Issue and Savings

Can improvements in strategic planning, particularly in
the goal-setting process, result in improved and more cost-
effective research and development (R&D) management in
agencies?

The Task Force believes that significant improvements
are possible in the R&D management process through the imple-
mentation of effective strategic planning. Implementation of
specific r commendations woald result in estimated savings of
I?!! bUliln in the first year, $2.4 billion

yeat, and ^2.7 billion in the third year for total three-ye r
savings of $7,3 billion.

Background

Strategic planning has evolved over the last 25 years
into fvaluIbL manageLnt tool, one that is necessary to set
the overall direction for any organization and to provide the
f?Lew«k to guide both long-range and short-term actions.

AS Shown in Exhibit II-l, on the following page, it is
basically a system to:

articulate the agency goals;

formulate and evaluate program plans for achieving
the goals;

select alternative projects within resource con-
straints;

prepare and document implementation actions; and

o evaluate the programs.

Strategic planning must be evaluated as a process and as
a substantive activity, particularly in the statement of
goals. If the goals that come out of the process do not con
tain the necessary attributes, then the remainder of the

[Exhibit II-l on the following page]

qtratRGIC planning

steps in the process of strategic planning are of limited
value. It is increasingly recognized that the establishment
of goals is one of the most difficult tasks involved in stra-
tegic planning, it is also apparent that in those situations
where the goals were poorly defined, the results of the en-
tire process were less than satisf actory .

In recent years, the private sector has increasingly
emphasized and focused attention on the establishment of
specific long-range goals. More and more large corporations
are instituting formal long-range strategic planning pro-
cesses. Most corporations start by analyzing economic
conditions and their projected market posture for ten or 15
years into the future. This exercise helps executives set
specific goals and establish program definitions, budgets,
and schedules, emphasizing the required near-term actions.
These plans are usually produced by an iterative process
involving many management levels, then communicated to all
managers and supervisors. Top management reviews the plans
periodically and must concur in any changes. The plans are
used to establish and maintain audit trails for progress
evaluations.

The Task Force members are familiar with the R&D stra-
tegic planning processes used by the corporations represented
on the Task Force and other well— managed industrial firms.
Benefits of strategic planning must be very real because
major corporations have continued to increase ' their planning
emphasis, despite the many implementation problems that have
been identified.

Within the Government, strategic planning received its
first real emphasis in the early 1960s with the efforts of
Secretary McNamara in the Department of Defense (DOD).

Initial strategic planning efforts were made under the Plan-
ning, Programming and Budgeting System (PPBS). Since then,
the name of the systems and the emphasis have changed, but
some of the elements of the strategic planning process are in
place in most agencies. The elements currently used include:

o definition of goals (sometimes called missions or

objectives ) ;

o analysis of requirements and constraints;

o identification of alternatives;

o analysis of alternatives;

O comparison of alternative to resources;

o selection of alternative;

o definition of implementing actions;

o consolidation and review; and

o documentation.

both the key substantive point of
TtratUtrpuiiing aefinition of goals) and tne process

of strategic planning.

Methodology

The following approach -- ”asf

and validate the concisions reached. The TasK

° thrii teitS«rass«smInt'’orci?“ '

Tni iitetvieus with senior agency management:

o analyzed previous studies in related areas and
discussed them with agency management; and

0 ' assessed comparable industry practices and
experience.

Prior to discussions with performed

r^fvtli^ffuriSLrru i cations on th^
rtfdrerrerfcr^a^/or^^Inifnrproble'rfo; the technology
base witLn several federal agencies.

Since it would have taken many months^of

part of this team to ^ its efforts for this

?he Task Force decided the National Aeronau-

issue on three Federal fwAQA) and the Department of

tics and space Administration (NASA), and tn^^^ budgeted

Energy (DOE). '^^®^®v,'^^f.®reDresents 82 percent of the total
for $36.2 billion, «hich represents 82 per^ percent of

FY 1983 R&D ‘=>^^J®^;s/porce Emphasized its R&D involvement,
these funds, the sider the National Institutes of

HeaU^<«Hrand III Department of Agriculture (USDA).

Although the team's efforts were concentrated on the three
agencies, there is every reason to believe that the findings
are typical of all agencies. Any benefits that could be
derived from implementation of recommendations contained in
this Report could be similarly achieved by the other agencies.

Findings

Based on the experience in our own corporations and on
knowledge of other corporations in the private sector, the
Task Force believes that the Government is five to ten years
behind industry in strategic planning. There appears to be
limited long-range strategic planning in Government agencies.
Although a number of agencies have partially developed ele-
ments of the strategic planning process, none of these ele-
ments are based on specific Federal goals.

In describing our findings on strategic planning in the
principal R&D agencies in the Federal Government, we have
made a distinction between the statements of goals used in
the planning process and the process itself. In some cases,
strategic planning is based on goal statements that are so
broad and general that they minimize the benefits that can be
derived from the process. In other cases, where goals have
been well defined, strategic planning can be a valuable tool.

Our analysis of strategic planning starts with an
assessment of the existing statements of goals. This is then
followed by an assessment of the strategic planning process
itself. The section concludes with several findings dealing
with the results of existing planning processes.

1. Lack of Consensus on Goals

The absence of full agreement on Federal goals causes
confusion within the agencies and forces them to create their
own goals. This is the greatest problem the Task Force found
in current strategic planning efforts.

DOD serves as a clear illustration. The three Services
(Army, Navy, and Air Force) plan almost autonomously and
frequently at cross purposes with little direction provided
by the Under Secretary of Defense for Research and Engineer-
ing (USDRE) or the Office of the Secretary of Defense (OSD).
There are relatively few joint programs between the Services,
even though their tactical requirements often demand essen-
tially the same R&D. In NASA and DOE, the absence of Federal
goals has led to disarray in setting priorities and. to
"bootlegging* pet projects.

In order to be more specific about the problems with
existing Federal goals, the Task Force put together a set of
criteria to be used in evaluating the usefulness of goals for
strategic planning purposes. In developing these criteria,
the Task Force relied on the experience in their own corpor-
ations and the general literature available.

A good goal is a clear, measurable, specific state-
ment of what is to be accomplished {for example,
■■TeHuce the nation's infant mortality rate by two
percent over the next five years" ) .

A time frame is stated ("improve communications and
control systems in the next eight years to make
sure we can communicate with strategic forces, even

after a nuclear attack").

The group responsible for implementation is desig-
nated ("to be carried out by the Chief of Naval
Operations" ) .

Projected results of achieving the goal are per-
ceived by the public, by employees and by others to
be worthwhile (e.g., successful completion of a
magnetic fusion demonstration plan would provide
the nation with a safe, renewable, inexpensive
source of energy).

The goa 1 is f eas ible (e.g., "put a man on the moon
by the end of the decade" ) .

If goals
little or no g
analysis, rank
implementing a
infant mortal!
provides real
In contrast, a
provides littl

do not meet these criteria, then there will be
uidance in the design of alternatives; their
ing and selection; and the identification of
ctions. A goal for NIH to "reduce the nation^s
ty rate by 2 percent over the next five years"
guidance and direction to strategic planning.^
goal to "solve the nations’s energy problems"
e, if any, help to the subsequent steps.

Using the criteria defined above-, the Task Force
analyzed the content of some of the more prominent Federal
goals .

strategic Program for Defense — The Strategic Program
for Defense provides an example of a goal developed in exten-
sive consultation between the White House and DOD, and then
articulated by the President. It is a comprehensive plan for
revitalizing our strategic deterrent which will end the rela-
tive decline of U.S. strategic capabilities and- put the

United States in. a position to reshape the U.S. -Soviet stra-
tegic competition in the eight years ahead. It deals with
one specific area of national defense and embodies all of the
basic characteristics of an effective goal. It outlines in
detail in which direction the President wants to lead the
nation in five strategic areas. It specifies a time frame
for achieving results. The responsible party is clearly
DOO. Further^ it is perceived to be worthwhile in enhancing
the defense posture of the United States. It is feasible and
can be accomplished in the time period specified. It is
acceptable to DOD^ Congress/ and the public.

Strategic
Program
for Defense

Clear

Measurable

Specific

Stated

Time

Frame

Responsible

Group

Desiqnated

Results

Worth-

while

Feasible

Goal

Yes

National Space Policy — The R&D goals of NASA are to
extend our knowledge of the earth/ its space environment and
the universe; to expand space technology for practical appli-
cations; to develop/ operate/ and improve manned and unmanned
space vehicles; to provide technology for improving the per-
formance of aeronautical vehicles; and to assure continued
development of the aeronautics and space technology necessary
to accomplish national goals. These national goals articu-
lated by President Reagan are:

o to strengthen the security of the United
States;

o to maintain United States space leadership;

o to obtain economic and scientific benefits

through the exploitation of space;

o to expand United States private -sector invest-
ment and involvement in civilian space and
space-related activities;

o to promote international cooperative activi-
ties in the national interest; and

to cooperate with other nations in
maintain the fteeaom

Which enhance the security and welfare of
mankind.

NASA's mission statement is
much more than public relations,
policy is not much more specific

too general to be considered
and the President's space

Clear

Measurable
Soeci f ic

Stated

Time

Frame

Responsible

Group

Designated

Results

Worth-

while

Feasible

Goal

National

Space

Policy

Yes

Maybe

NASA’s goal is incomplete compared to the five industry
attriSu?es of a well-articulated goal. Goal ambiguity forces
NASA to fill in the gaps on its own
agency’s planning process suffers
guidance .

As a
from the

result,
lack of

the

top-down

Institute
national

( NHLBI )
attack

National Heart. Lung and Blood

3iUis«°o£™h"heat;'anS bi^^iess^ls, the lungs
• also does not meet the industry criteria.

— The
against
and blood

Clear

Measurable
C npc i f i c

stated

Time

Frame

Responsible

Group

Designated

Results

Worth-

while

Feasible

Goal

NHLBI

Yes

Maybe

The issue team recognizes that setting specific g
for basic research is more difficult than for applie
research. Efforts should be made to be as specific ^ “

•Kio h*ir <;trict adherence to demands of timing or fea
luiti Ty 3ri«e3u3tic. Again, nebulous goals are hamper-
in9 ci good planning process*

Energy — National goals for energy development are in
shambleT/ This is understandable in light of:

0 oil embargoes and instability in the Middle East;

o the distinct lack of public confidence in nuclear
energy, prompted by the Three Mile Island crisis
.and the nuclear waste disposal question;

o doe's tentative future;

o the shift in policy to allow the marketplace to
guide the development of energy systems; and

o public disillusionment with expenditures on alter-

native energy technologies, i.e,, their failure to
provide commercially viable energy production
systems.

The issue team believes this is a prime example of an
area where it is difficult to develop meaningful goals; by
the same token, it is urgent that specific energy goals be
developed.

The Task Force reviewed two statements of goals in the
energy area: The National Energy Policy Plan and the much

more specific Magnetic Fusion Energy Program. The National
Energy Policy Plan, submitted by President Reagan to Congress
to meet the requirements of the Department of Energy Organi-
zation Act (PL 95-91), is a broad statement of the Administra-
tion's energy policy. The issue team did not find adequate
guidance in the 1981 statement (the latest available at this
time) for DOE management. As a broad policy document it did
not articulate clear, measurable and specific goals which
were to be met in a stated time frame.

Clear

Measurable

Stated

Time

Responsible

Group

Results

Worth-

Feasible

National

Energy

Policy

Plan

Specific

Frame

Designated

while

Goal

Yes

In contrast. The Magnetic Fusion Energy Engineering Act
of 1980 (P.L. 96-386) provides national goals for demonstrat-
ing the scientific and engineering feasibility of the use of
fusion energy. 3y industry standards, this is a fairly
complete goal.

Clear

Measurable

Specific

Stated

Time

Frame

Responsible

Group

Designated

Results

Worth-

while

Feasible

Goal

Magnetic

Energy

Fusion

Program

Yes

Maybe

Some experts, -however, question the scientific and com-
mercial feasibility of this goal.

Summary — In setting goals, an effort must be made to
prevent political considerations and "wishful thinking" from
biasing or overriding technical analysis. This may or may
not have happened in the energy goal-setting process. There
will always be some doubt about a goal's feasibility. The
issue team emphasizes this doubt because it is commonly
voiced during any good goal-setting process. Decision-makers
worry that despite good analysis, the goal cannot be met.

There is no way to avoid the doubt. Therefore, goal-setting
must be an ongoing process, where progress and feasibility
are constantly reevaluated.

The issue team found elements at work in each of the
agencies, but none has a complete set (see Exhibit II— 2,
Summary Table, on the following page). The clarity and
content of the actual goals simply do not meet the industry
standard. There is little evidence of top-down, bottom-up
consultation combined with staff analysis. None of the
agencies has a complete set of clearly defined Federal
goals. The absence of goals severely hampers the ability of
existing planning processes to produce results. Typically,
the agencies attempt to cover as many areas as possible rather
than targeting R&D to top national priorities. This approach
tends to allow R&D projects to proliferate when many. of them
should be terminated. All of the PPSS Task Force reports
dealing with weapon systems development and procurement (OSD,
Air Force, Navy and Procurement), found, for example, that DOD
suffers from an inability to prioritize its weapon systems
projects.

(Exhibit II-2 on following page]

EXHIBIT I 1-2

SUMMARY TABLE; Five Federal Goals Compared to Basic
Industry Criteria For Establishing Effective Goals

Clear

Measurable

Specific

Stated

Time

Frame

Responsible

Group

Designated

Results

Worth-

while

Feasible

Goal

Strategic
Program
for Defense

Yes

National
Space Policy

Yes

Maybe

NHLBI

Yes

•Maybe

National

Energy

Policy

Plan

Yes

Magnetic

Fusion

Energy

Yes

Maybe

2» Most Agencies Use Key Elements of the Strategic Planning
Process

Most of the Federal agencies utilize some of the key
elements of strategic planning. In some cases,
receive the emphasis they should because they are dominated
by the annual budget process. In other cases, their effec-
tiveness is severely hampered by the inadequacies in the goal
statements cited above. The following paragraphs briefly
evaluate the process used in the major agencies.

Department of Defense (POD) — At present overall DOD
planning as well as R&D strategic planning is highly frag-
mented. Each Service has developed its own independent plan-
ning techniques, and each essentially competes for budget
funding. Very few joint- programs are underway, and the role
of USDRE is minimal due to the fact that it has no authori y
for overall R&D programs within the Services, other than veto
power. It would be difficult to establish a strategic
for DOD R&D unless either OSD or USDRE directly manages the
three Services, as well as other agencies within DOD such as
the Defense Advanced Research Project

present, the three Services operate very different R&D plan-
ning processes, as described below.

Air Force — The Air Force has developed and is
using a formal planning process called Vanguard.

It requires' that each planner identify the jobs
that must be done and assess the Air Force capa-
bilities to perform those jobs with current forces
and currently programmed improvements. The plan-
ning system is designed to identify potential defi-
ciencies, planned modifications, and comparison
with budget constraints. The Vanguard plans are
prepared as briefings. When properly used, the
plan will provide answers to such questions as:

(a) How does a program element contribute to meet-
ing Air Force military needs? (b) What is the
contribution of a program to other mission areas?

(d) Does it fit the budget? (e) What are the key
decision points and when do they occur? (f) Is the
new system compatible with existing programs?

A technology plan links basic research and explor-
atory development programs to decisions provided by
other plans, thus providing guidance to the labora-
tories. The Vanguard planning process is in its
gacly stages of implementation and has not been in
place long enough to produce any notable improve-
ments .

There is little or no coordination of programs
among the other Services of OSD included in this
planning process. One of the purposes of the
Vanguard plan is to project needs of the Air Force
for the next 15 years. Accordingly, the plan
should encompass joint efforts among the Services
and be integrated with their long-range planning
documents. For example, the Army Air Land 2000 and
the Air Force 2000 programs are the long-range
plans designed to project military needs in the
next few- decades. Yet there appears to be little
coordination between the two Services at the most
critical phase, the planning process.

o Army — The Army planning process is identified in
the U.S. Army Chief of Staff Regulation (CSR) No.
11-15, "Army Programs, Army Long-Range Planning
System," issued in May 1981. This directs a look
"ten to 20 years in the future." The Army recog-
nizes that its planning is structured along program
lines (e.g., tactical programs) and has a draft CSR
in process titled, "Army Long-Range Research Devel-
opment and Acquisition Planning." This will become
a functional part of the Army long-range planning
system described in CSR 11-15. The science and ‘
technology plan developed by this process is being
issued for the first time in final form (the draft
was issued two years ago), as is the first draft of
the development and acquisition plan.

Our assessment is that the Army's long-range plan-
ning process, as it is being developed for R&D,
features all of the basic elements for effective
strategic planning. It has the potential of becom-
ing a system for all agencies, not just the Army.
The Army agrees that it may take several years to
implement and will require the continued attention
of Army management from the Chief of Staff through
all commands. Like the Air Force, the Army has
little or no joint planning efforts with other
Services or with OSD.‘

o Navy — After extensive discussions with a cross-
section of naval R&D management, the issue team
found little evidence of a formal, comprehensive
long-range planning process for the Navy. It did,
however, uncover the initiation of a planning pro-
cess in Office of Naval Research (ONR). The team
reviewed several internal documents issued by the
Chief of Naval Research in January 1982, pertinent
points of which are summarized below:

The policy guidance states that "the Naval R&D
programs must display characteristics of tech-
nical excellence, direction, and
which reflect a clear commitment to the Depart

ment needs and priorities.*

' ■ - "The claimants (program originators) are

expected to tailor their projects so as to

complement (as opposed to

programs of DARPA, the ?^her Services,

national laboratories, industry and the

universities."

-Claimants are to consider the
in the formulation of their project ^
and will be required to include an assessment
of the relationship of these needs to their
proposal . *

The issue team saw little evidence from the Navy
strategic long-range plan was in aevelop-

™e«. ISe “elitce alpearl to be bogged down with
bureaucratic policies and aitectives; it is not
developing a set of goals from which an '

mission-directed research program can be derive .

tagic planni 9 kv President Kennedy to put a man on

ssiiicii

these lists that the majority of project cente?^

is from the bottom-up rather than top-down,
aLinistrator justifying his/her existence and facility.

Department of Energy — Like NASA, DOE suffers from
indirection. Long-range plans are assembled within the
Department, but the ranking of alternatives is meaningless
without clearly defined goals. As a result, the DOE long-
range plan consists primarily of bottom-up project plans.
Without adequate goals, DOE is subject to a high degree of
micro-management from Congress and lobbying groups.

The issue team saw evidence that DOE managers scrutinize
R&D programs and may even drop them if they do not fit their
de facto goals. The team also observed that some expensive
programs are "forced" on DOE by Congress (for example, the
funding of insulation to be added to homes of the poor, which
is clearly not a DOE mission). DOE was the only agency
evaluated where agency officials stated that their own R&D
budget should be reduced (and it was) rather than expanded..

The National Institutes of Health — In the health
arena, the Government primarily supports basic research.

Most of this support is through NIH. In health, the Govern-
ment is not the primary end-user (unlike defense or space)
and,. for the most part, leaves the application of basic
research to the private sector. Thus, the task of strategic
planning in health research is more difficult. The NHLBI
provides a good example of this process at work.

NHLBI goals are articulated in the 1972 law that estab-
lished the Institute. Specifically, NHLBI is "... to
advance the national attack against diseases of the heart and
blood vessels, the lungs and blood . . . ." In the absence
of more specific goals, NHLBI develops its own. The NHLBI
strategic planning process involves an annual update cycle
characterized by a continuous flow of information from the
public, the biomedical research community, the medical com-
munity, other Federal agencies and organizations outside of
Government.

As part of this planning process, a series of reports
and formal plans are published each year. These documents
are prepared by NHLBI staff members to structure and coordi-
nate input from the NHLBI Advisory Council and from commit-
tees and consultants. The documents serve as resource
materials, implementation plans for program activities, and
state-of-the-art assessments. They define program component
interrelationships, inform Congress and the Administration of
needs for accomplishing the five-year plan, and inform the
scientific community about the Institute’s accomplishments.

Department of Agriculture — USDA is in the early
stages of developing a strategic plan. The program strategy
describes the kind of research that Agricultural Research
Service (ARS) scientists identified as necessary to meet the
short- and long-term needs of the agricultural sector. In
addition, a six-year implementation strategy is being devel-
oped to provide guidelines for executing those portions of
the plan that ARS believes have a high probability of attain-
ing the stated research objectives. The guidelines seek to
assure the most efficient use of available resources in
pursuit of the objectives.

goal :

These plans are designed to achieve the following ARS

Through fundamental and applied research,

ARS seeks to provide the means to solve the
technical food and agricultural problems of
broad scope and- high national priority as
required to assure perpetually an adequate
supply of high quality food and fiber for
the American people and for export.

The issue team concludes that the elements of this
plan closely correspond to elements found in the private
sector and will address many of the problems of ranking
fundamental research programs. In the absence of more ^
defined Federal goals, the plan outlines key research
efforts based upon estimating future demands for food and
other agricultural products. The issue team views this
plan as potentially one of the best bottom-up processes
reviewed within Federal agencies.

3, Evidence of the Inadequacies of Strategic Planning

In the private sector, the strategic plan is the driv-
ing force in establishing policy and setting priorities.
Because of the lack of adequate goals and the inadequacies
of the plans themselves, policy and funding priorities are
deferred to the annual budget cycle in the Government.

Ultimately the final program selection is negotiated
with the Office of Management and Budget (0MB), whose major
interest is control of total budget dollars (rather than
balancing national priorities). The annual budget cycle
becomes a trade-off between competing laboratories and
agencies. Rather than a debate between defined national
priorities, the process is a series of negotiations deter-
mining how much increase (or decrease) in funding each agency
must plan for the fiscal year. Sometimes agencies receive

funds they did not request, causing a last-minute rejuggling
of their own priorities. Other times, some deserving pro-
grams are dropped in favor of a Congressionally supported
program stemming from lobbying pressures. A set of defined
long-range goals (five to 15 years) for each agency would
provide agency management with a stronger mandate to minimize
this type of redirection and simplify the planning process
for individual agencies, as well as for Congress and 0MB.

It is extremely important in R&0 planning to achieve
a balance between top-down planning and a bottom-up approach.
In any Government agency, an absence of the top-down approach
permits the bottom-up approach to predominate. This results
in unnecessary program duplication between laboratories and
agencies and tends to continue programs of marginal value
because champions have successfully '’sold" them,. Some funda-
mental research projects that are not mission oriented should,
of course, be budgeted to encourage creativity and potential
spinoff. The majority of RiD programs, however, should be
oriented toward defined agency goals, not pet projects.

Again, the problem is the absence of formal, top-down guid-
ance regarding the agency's goals that can .be translated into
requirements, both near and long term.

Present planning techniques often do not include imple-
mentation plans and scheduled decision points (milestones),
making it difficult to determine progress and make course
corrections from prior plans. Without defined strategic
planning elements, these key milestones do not exist. Long-
range planning should highlight program milestones and pro-
vide the needed visibility to minimize the "budget ax" or
program redirections that often occur during budget cycles.
R&D programs are rarely completed in one year. The annual
reviews would be more meaningful if progress could be mea-
sured against a projected set of milestones and expenditures.

POD has no central planning focus. The isolated plan-
ning techniques in the Services tend to muddy the planning
focus at OSD; OSD exhibits little control of joint programs
and does not provide encouragement for cross-fertilization of
R&D and weapon systems. USDRE does not exercise leadership
in DOD's goal-setting and planning process; there are very
few joint Service R&D programs and little cross-fertilization.
In fact, the issue team found that USDRE is encouraging
greater decentralization. The Air Force, for example, has
moved the direction of its many .laboratories from a single
management point to individual user commands. The issue team

jnembers believe that such a step only serves to narrow the
planning focus and make cross-fertilization even more diffi-
cult and duplication of effort more prevalent.

The degree of isolation is evident by the following:

o Some military Service R&D managers do not even know
who their counterparts are in the other military
Services .

o Programs within DARPA are not disseminated rou-
tinely to the Services.

o Cross-fertilization is rare.

The majority of the longer-range planning done within
Federal agencies is not constraint driven. For the most
part# agencies employ a bottom-up planning approach and a
broad set of agency goals, resulting in a process that forces
agency planners to cover all potential contingencies. There
is little ranking of issues at each level of the organization
to assure that the real issues emerge and are analyzed in
light of budget targets. This approach also forces the orga-
nization into a "selling mode" early in the process, a
hazardous condition and one hard to change as the process
rises to senior management.

The planning process fundamentally operates annually;
almost all decisions are reviewed and re-reviewed and,
indeed, many change from year to year. External pressure
from Congress, frequent changes in policy and leaders, and
failure of the system to provide a longer term strategic
focus cause this kind of short-sightedness. Year-to-year
planning is wasteful, particularly for R&D activities that
tend to be long term. An enormous amount of time and dollars
is eaten up in rejustifying each year's decisions. Agencies
can avoid the important issues, since one year's unapproved
program can be resubmitted the following year.

4. Implementation of Effective Strategic Planning Should Be
Expected To Be Lengthy

Implementation of effective strategic planning in the
Government R&D agencies is going to take time. Industry
experience seems to indicate that agencies will need a three—
to five-year learning process to evolve, refine, communicate,
gain acceptance for and achieve a reasonably satisfactory
degree of efficiency with respect to strategic planning. Top

management must persistently emphasize and support the pro-
cess if there is to be any hope of success. Even then,
according to industry experience, the process of setting
goals and strategic planning is a never-ending discipline
that must be maintained and continuously improved in order to
produce results.

It is not surprising, then, that Government agencies
attempting to incorporate long-range strategic planning are
experiencing the same frustrations of the learning process.
The O.S. Army started to develop its process four to five
years ago. The first long-range plan for science and tech-
nology only just recently entered the system in draft form.
This year's revision to the Army's Science and Technology
plan is in final form now and a long-range strategic plan for
Development and Acquisition is in draft form.- The progress
is real, and the Army should be commended and encouraged.
Similarly, the Air Force Vanguard program is now being imple-
mented and should produce measurable results by the next
fiscal year.

Conclusions

Strategic planning as applied to Government R&D efforts
is generally ineffectual in large part because the goals that
have, been established are not adequate to guide the planning
process. Also the process does not work within realistic
budget constraints and does not result in implementation
plans that clearly spell out actions necessary to meet the
goals.

These shortcomings cause the following deficiencies in
R&D planning:

o Federal R&D plans do not direct available resources
to areas with achievable results.

o Many more R&D programs are initiated than can be
funded at either the development or acquisition
stage.

o R&D programs are not ranked, which leads to ineffi-
cient use of development funds.

o Agency managers often are not able to terminate
programs that do not meet cost and performance
targets or that are no longer required to meet the
mission and goals of the agency.

There is much program duplication because of lack
of cross-fertilization between laboratories, the
Services, agencies and users.

In the absence of formal, top-down guidance on the
nation’s priorities. Federal R&D programs cannot be
effectively translated to meet both the near- and
far-term technological requirements.

These deficiencies are identified in several other PPSS
Task Force reports. Several of the reports dealing with
defense issues pointed to the problem of initiating more R&D
piogtaras than can be funded and to problems of priorities.

The PPSS Task Force Report on DOE highlights ^

and problems in the RSD programs because of a

articulated goals. In the Report on the Department of Trans-
portation, the Task Force questions the lack of specific
focus for that agency's R&D program.

Recommendations

R&D 1-1: Redirect all agency planning efforts to _con-

ce nt rate on developing statements of goals that refiecj.

;.npncv orioaties. The lack o^ precision~and
clarity that exists in current statements of agency and pro-
grtm g«l5 harbeen documented by the Task ^

in strategic planning require a ma^or strlteaic^

all participants in redefining the goals so that strategic

planning can play the essential role that it should.

Goal setting is a discipline, not a sporadic chore. The
nrocess. as well as the goals themselves, require constant
^xamtnaiion and%mphasis! Top -^agement cannot de^
separately from the line managers and staff
strategy and implementation. Similarly, line managers c
focus adequate resources to achieve long-range goals they set
by themselves. They need top management s concurrence and
authority; a top-down, bottom-up mix of management partici-
pation is .required. A continuous intensive process of this
kind is typical of what is sought in the private sector.

In order to develop goals for the Government R&D pro-
arams. all levels of the organization must be involved,
including 0MB, the Office of Science and Technology Policy
(OSTP) and the White House staff. The Findings section
pointed to the goals for the Strategic Defense Program as the
kind of goal statements necessary to guide and direct stra
tegic planning. In order to improve R&D planning the same
type of effort will be required in all areas.

■33

The Task Force fully recognizes that the establishment
of goals of the type described here is an evolutionary pro-
cess that cannot be accomplished in a given time frame. In
fact it will be a continuing process. Furthermore, it will
not be possible to develop adequate goals for all aspects of
Government R&D in a year or two. However, we recommend that
the agencies initiate the process and develop the discipline ,
necessary to influence strategic planning. Thought and inter-
action among all levels of the line and staff organization
are the essential ingredients.

In order to institutionalize the goal-setting process,
we recommend that each agency designate a senior official (at
the Assistant Secretary level) to lead the internal effort
and to coordinate with other agencies and the Executive
Office of the President (EOP) through the Office of Science
and Technology Policy (OSTP). Each agency should work with
the appropriate Cabinet Council or the National Security
Council in establishing the goals for the agency and review-
ing the results of the strategic planning process. We recom-
mend that OSTP coordinate the process and provide the neces-
sary assistance in evaluating the adequacy of the goals. In
the past, efforts to institutionalize strategic planning have
focused on 0MB and the associated budget process. This has
not been very successful. The success of strategic planning
is ultimately related to the commitment of top management.

As this management changes, the new managers must assume the
leadership role.

R&D 1-2: Develop improved strategic planning concepts

and procedures. The Task Force has commented on many of the
existing strategic planning systems and procedures. Each
agency will require revisions to certain aspects of its
systems.

Given the diversity of R&D' missions and programs of the
agencies we do not feel that a single system can be applied
uniformly to all agencies. However, the system developed in
each agency should provide for the essential element of stra-
tegic planning.

We recommend that each agency adopt a strategic planning
process that will meet its needs. The senior official desig-
nated to lead the goal-setting effort should coordinate the
development of the strategic planning process in the agency.
Coordination with other agencies that appear to have effective
systems (e.g., the Army and ARS) would be beneficial. How-
ever, the organizational and management style of each agency
will influence the systems and procedures used.

R&D 1-3: Use strategic planning as the basis for subse-

quentHBudgetinq and operational management^ As the strategic
planning process develops and encompasses certain agency
activities, those portions of an agency's operations should
be driven by it.

Too many strategic planning efforts have failed because
they are subjected to rigid timetables. In such cases, the
quality of the strategic planning is inadequate to support
the budge*ting and operational management. Artificial dead-
lines lead to inadequate analysis and procedural solutions.

VJe recommend that the agencies initiate the process
immediately and begin the cut-over to budgeting and operation
al management as the quality of strategic planning permits.
For example, we would not be surprised if it took more than
five years of concentrated effort to develop an adequate
strategic planning process in DOD. Any attempts to tie bud-
geting and operational management to the strategic plans
before then would be counterproductive.

We recommend that each agency set its own pace in imple-
menting strategic planning and that the pace be controlled by
the top management of the agency. To ensure that progress is
made, the agency should make a commitment to EOF regarding an
implementation schedule.

Savings and Impact Analysis

It is difficult to quantify the dollar impact of effect-
ive long-range strategic planning. The primary thrust of our
recommendations is improved management of the R&D process.
Improved management focuses on the effectiveness of the pro-
cess, not just the cost of conducting the program. The
actual savings to be realized are open to debate. Although
opinions vary, almost everyone agrees that real savings will
result from incorporating long-range strategic planning into
R&D operations. From industry's perspective, the process is
essential .

One measure of the potential savings in the area can be
seen from the PPSS Task F.orce on OSD. Issue OSD 21 recom-
mended that DOD limit the number of new weapons systems
starts based on anticipated funding availability (An effec-
tive strategic planning process would achieve this objec-
tive.). That Task Force estimated annual savings of $1.1
billion in Research, Development, Test and Evaluation (RDT&E)
funds when the recommendations were fully implemented. If
these figures were extrapolated to the total R&D budget of
the Federal Government (on the basis of total R&D of $44.3

Isillion versus DOO's R&D of ^24.8 billion)/ the annual
savings when fully implemented would be $1.96 billion.

Elimination of R&D starts based on funding availability
would be only one aspect of the savings which could be attri-
buted to the implementation of our recommendations in this
area. The improved effectiveness of R&D, the ability to more
easily eliminate redundant research, and the ability; to elimi-
nate programs that do not meet cost and performance standards
would add to anticipated savings.

Another approach to estimating potential savings was
based on using three sources to develop an estimate of the
degree of improvement and potential cost savings that could
be expected with the implementation of an effective strategic
planning system. These were:

o agency management personnel,

0 public interest leaders, and

o senior private sector R&D managers, particularly

the Co-chairmen of this Task Force.

It is the Task Force's collective judgment that 10
percent enhanced efficiency is a reasonable estimate. The
leaders of several public interest organizations suggested
numbers in the 10 to 20 percent range and the estimate of
agency management personnel who would cite a figure was in
the 10 to 15 percent range.

Accordingly, the Task Force conservatively estimates
that the implementation of a strategic planning process would
reduce overall R&D costs by 10 percent. However, in view of
the complexity of this issue and of the many uncertainties
involved, the Task Force recommends half of the claimed sav-
ings (5 percent) be’ viewed as an objective and the other half
be claimed as potential savings. Based on the FY 1983 R&D
budget of $44.3 billion, first-year savings of $2.2 billion
could be anticipated. Using a 10 percent inflation factor,
the savings in the second and third years would be $2.4
billion and $2.7 billion, respectively. Total three-year
savings potential is $7.3 billion. Given the savings docu-
mented by the DOD Task Force, this level of savings appears
reasonable. -

Implementation

Strategic planning can be implemented by ^jency

head by means of administrative action. .

importance of strategic planning to the ..

aaencv. the Task Force believes that specific direction for
implementation must come personally from the head of each
agency.

• ISSUE AND RECOMxMENDATION SUMMARIES (CONT'D)

RESEARCH AND DEVELOPMENT (CONT'D)

R&D 2; R&D MANAGEMENT AND THE BUDGET PROCESS

Issue and Savinas;

Can the detailed process associated with the budget be
improved to make the research and development (R&D) manage-
ment process more efficient?

The Task Force believes that implementation of its
recommendations will significantly improve the overall
management of R&D. Major savings opportunities are avail-
able in the actual R&D and associated procurement funds.
Several PPSS Task Forces recommended changes in this area
with estimated savings opportunities of $25.9 billion over
three years. These savings opportunities impact both the
Research, Development, Test and Evaluation (rdt&E) budget
and the associated procurement budget. This Task Force
estimates three-year savings opportunities of $3.67 billion
xn the RDT&E budget if major reforms are implemented in the
budget process.

Background

All of the Task Forces that dealt with the Department
of Defense (DOD) — the Office of the Secretary of Defense
(OSD), Air Force (USAF), Army, and Navy — as well as the
Task Forces on the Departments of Energy (DOE) and Trans-
portation (DOT), and Procurement focused on problems of R&D
and weapons systems acquisition caused in part by the
annual budget process and the associated single-year pro-
curement policies. These issues all dealt with the insta-
bility that results and the opportunities for savings that
exist if the instability is removed.

This issue will address several aspects of R&D manage-
ment directly impacted by the budget process. By defini-
tion, this Task Force is only dealing with the R&d phase.
Yet, in several agencies, notably DOD and DOE, the R&D
process is tied directly to the procurement process and
opportunities for savings extend to those phases as well.

The budget process is the mechanism by which
results of planning for R&D and weapons systems are
minted This procLs in the O.S. Government is complicated

and takes two lalendat years or more to 3"on"the

ro!Ioi:inrpa.r;rrs“ei?^

D^Mes^fo? the FY 1983 budget. Individual sub-agency

level organizations began their budget *?

^^o<! in the fall of I960 (particularly for the larger

rulgeilJeprrauln"LJ?Ju?«no;me^ird'^;'?reSp^

The 0MB budget review and preparation
immediately upon receipt and extended to January 1982 »
tS^sibrnisLon of the President’s Budget to Congress.

During that period, agency P«^®°”"®^ ,''®f ® . 0M3
call to defend their budget, appeal '

and make the necessary revisions to the overall budget

package.

Once the President’s Budget is submitted to Congress,
the focus shifts to the House .and Senate appropriation
aStho^izItion hearings process. During this Phase the
agencies must be prepared to testify and respond to the
many Congressional committees and subcommittees with
jurisdiction over their budget*

The end result is a series of appropriation bills and
resolutions which give the agencies the authority
money. For the FY 1983 budget, the con'Pl®^^®^'
cess^for the individual appropriations was as follows.

Agency

HUD - Independent Agencies

Military Construction

Agriculture

Transportation

District of Columbia

Interior

(All others were included
in the 2nd Joint Resolution)

Date Signed into Law

Sept. 30, 1982
Oct. 15, 1982
Dec. 18, 1982
Dec. 18, 1982
Dec. 23, 1982
Dec. 30, 1982
Dec. 21, 1982

(Exhibit II-3 on following page]

That all appropriation activity for the FY 1983 budget
was completed by December 1982 reflects the fact that the
final session of the 97th Congress would

bills and any bill not passed by ges-

die. In odd-numbered calendar years, when the first ses
Sion of a Congress is involved, some of the appropriation
bills generally are not signed into law
the first of the next calendar year, since the same

Congress is in session.

fiscafyearunJil^irappropria?Lils^pass^

the 2nd Joint Resolution included the f ect of

language for the other appropriations and had the ettecc oi

the normal appropriation bills.

R&D budgets are included in the overall
and the process for the review and

qets is the same. There can be one mapor difference for
oc.n however# and that deals with new starts.

Cont?nu!*r«so^uUo;s generally provide ther the agency
=er«ntiLe the activities of the prior fiacal year at the
nrior year's level or the proposed level, whichever
lower ^ Therefore, when an agency begins operating a fiscal
year^n fcontinulng resolution, any new RSD start ”dst wart
for the passage of the regular appropriation bill,
t^in case^ some new starts are included in the continuing
resolutions. This can become a real problem
budget years handled by the first session of ®
when certain appropriation bills are not passed until the
summer of the fiscal year in question

Methodology

This issue focuses primarily on the R&D management
process in four agencies: DOD, the National Aeronautics

and Space Administration (NASA), DOE and the ^®tiona
Institutes of Health (NIH). Interviews were conducted at
these agencies with the top management personnel most
deeply involved in R&D. In addition, interviews were con
ducted with staff at 0MB, the General Accounting Office
(GAO), Office of Science and Technology Policy (OSTP), the
CongUssional Research Service, Congressional Quarterly,
the^Committee for a Responsible Budget, 4

firms with extensive R&D programs. The

viewed historical trend data on Congressional ^ ^

-operations, comparisons of public and private
organizations. Congressional committee reports and h g

transcripts^ GAO reports/ special reports on Federal
laboratories and r&d management practice, and various ppss
Task Force reports with issues related to R&D programs.

Findings

In most agencies, budget detail and justification is

f requiring information on numerous projects

including those of relatively small size. In FY 1983 there
are some 1,822 projects in NASA, DOD and DOE for which bud-
get detail is provided. Exhibit II-4, on the following
page, provides a summary of the budget justification submit-

HHS principal R&D agencies: DOD, NASA, DOE, and .

The top half of the exhibit shows that DOD, NASA and
DOE supply detailed, project-level information on projects
as small as $100,000. The average project size is $9.8
million in NASA and in excess of $31 million in DOD and
DOE. In^the lower portion of the exhibit, the sized distri-
bution of R&D projects within DOD is shown. Although the
average-sipd project in DOD is $31.6 million, the distribu-
tion data - indicate that roughly 75 percent of the projects
are smaller than average.

exhibit also shows a striking contrast between the
•NASA, DOD and DOE budgets and the NIH budget. In NIH's
case, the budget is communicated in terms of total program
levels, number of personnel, and an analysis of major
program changes for each institute.

The time involved in the budget process is excessive
and contributes to the cost growth proolem. The two to
three years lag in the budget process between initial bud-
get planning and subsequent funding actions makes management
and planning difficult tasks. In an R&D environment with
its rapid technological change, uncertainty and inflation,
planning and management are much more difficult. Time lags
of this nature, however, do not cause problems in budgeting
such operational functions as medical payments, civil ser-
vice payroll, and grants and loans.

(Exhibit II-4 on the following page]

The R&p budget justification package for DOD is

approximately 3,000 pages; the same package for NASA
IS 1,000 pages.

I.Kh I li 1 1 11^

NOT REPRODUCIBLE

Because of the lags, R&D budgets are established on the
basis of highly uncertain information. In the fall of 1980,
program/project managers began developing their detailed
budget submissions for expenditures in PY 1983. In an R&D
environment where by definition the future is uncertain,
developing detailed funding plans that far in the future
presents major problems. The problem is exacerbated for new
starts where the R&D project is not defined. In these cases
the rush to get the project included in the budget to be
considered precludes the kind of definitional planning that
should be done. A NASA study of the cost growth problem (the
Hearst Study) cited inadequate definition prior to the budget
decisions as an element contributing to the cost growth.

The lack of definition and the lead times involved can
cause subsequent cost growth in R&D projects because the
initially requested amounts become commitments on the part of
program managers. By the time the budgeted amounts are avail-
able for spending, technology changes and the results of the
prior years R&D efforts may indicate that a different amount
of money is required. In such cases, program managers first
try to live within the assigned ceilings by revising the scope
of the project or changing the schedule. When they do, they
are caught in the ■ situation that leads to real cost growth.
Many recent reports on cost growth [the Rand Corporation's
•Acquisition Policy Effectiveness* and the Air Force Systems
Command (AFSC) "Affordable Acquisition Approach*] have shown
that program stretch-outs and changes in technical require-
ments are contributing factors to cost growth.

In the AFSC study of cost growth, they found funding
instability as the cost and schedule growth factor that oc-
curred most often. External management impacts (defined as
the occurrence of program decisions above the program office
or the occurrence of frequent program reviews at USAF head-
quarters or higher) was the fourth most prevalent factor in
cost and schedule growth.

The budget cycle in the private sector does not involve
any delays of the magnitude encountered in the Government.
Relying on our own experience and based on information ob-
tained from other private sector firms, we have developed the
following general scenario explaining how R&d programs are
budgeted in the private sector.

o New projects are generally included in the overall
five- to ten-year strategic plan which receives
general approval. The projects are described in
brief terms and budgets are stated in ranges of
dollars such as $50-^75 million.

When it comes time to approve a specific project,
detailed plans and a budget are prepared. They are
then submitted to the Board for approval. This
whole review and approval cycle generally takes
30-60 days. In general, this approval process is
outside the annual budget cycle.

If annual approval is required for continuation of
the project, it is generally handled as part of the
normal budget cycle which takes two to four months.

We do not mean to imply that the Federal RSD budget
process should adopt the same specific type of schedule as in
the private sector. We recognize that in the P^yate sector
decisions are made on project proposals by an individual or
small group. In the Government, decisions require ®
sus in^the agency, the Executive Office of the President, and
Congress. Nevertheless, the length of the process is a maDor
management problem and it should be shortened.

The ronoressional hearings process places a signifiga^
burden on the agency. There are 30 Congressional committees
and subcommittees that have jurisdiction over DOE. In the
97th congress alone, DOE presented over 700 witnesses more
than 300 hearings. This problem is not unique to DOE.
agencies have found themselves appearing before an expanding
array of Congressional committees. In the case of DOD,
example, they have recently had to appear before the Interior
and House Ways and Means Committees, in addition to their ^
numerous appearances before the Armed Services and Appropria-
tions Committees. Each of these hearings ^

preparation of testimony. In addition, considerable time is
required to respond to written requests for information on
the part of the Committee, most of which are generated by
growing staffs.

staffs have in-
on the following
to the- personal
, have grown 11.7
II-6 shows the growth
most influence the
gy and Commerce and
increased by a fac-
ts on a single corn-
165. Despite this
has grown only 25

Since World World II, Congressional
creased about sixfold (See Exhibit II— 5
page). The Committee staffs, as opposed
staffs of individual members of Congress
times in 33 years (1947-1980). Exhibit
in staff for those key committees which
four large R&D agencies. The House Ener
Public Works Committee staffs alone have
tor of 16, and the number of staff membe
mittee. Energy and Commerce, has reached
growth, the actual number of committees
percent since 1955-56.

(Exhibits II-5 and II-6 on the following pages]

CONGRESSIONAL STAFF SIZE 1947-1980

(PERSONAL AND COMMITTEE STAFF)

o c o
< • • •

Oi ^ f— 1

o o o
^ ^

tn m

• • •

13NNOSH3d ddVXS

do b3Bir4nN

♦

r- ON vjo

f-4 ^ vD

^ in

\0 lO
O CO

r- o r-
« « ^

^ 00

VC ^ r-

m ^

m VO ^

iA •>

m ^

O rn rn
ro rsi
O (N n

^ rvji
-.10-
t- fc- <

U. < e

< &- C
c/:

w c

*J t: t:

< e- 2
z ^ ^

w a o

Ca cj

r\j p—

m 00

♦ -N ♦
<« «

SOURCK; (U VITAL STATISTICS ON CONGRESS, 1980 -

(2) OFFICIAL PAYROLL RECORDS OF HOUSE AND SENATE

Exhibit II~6

Mirntyr of rnintiittees i" the axise and Senate (1955-1980).

84th 0>n9.

(1955-56) (1967-68) (1971 72 )_

Total Nvanber of 315

Congressional Corwnittees

Site - Key Biin fv^rsiqht Cormittess

333

97th ODng.
(1981-82)

310

Hmisg (^snrnittees

o Appropriations
o Energy a Oormerce
o Science & Technology
o Public Works
o Armed Services
o Education & Labor

Senate Conmittees

o Appropriations
o Conmerce# Science and
Transportation

o Energy and Natural
Resources
o Armed Services
o Labor and Human Resources

1947 1960 1970

102

1981

140

165

135

1981 to
1947 Ratio

to l.C
to 1.0
to 1.0
15.8 to 1.0
5.4 to 1.0
13.5 to 1.0

4.4
16.5

5.5

4.0 to 1.0

115

16.4 to 1.0

5.6 to 1.0

4.6 to 1.0

134

19.1 to 1.0

Source:

Official PaytoU Becords cf Houae ard Senate.

The argument often used to justify this growth is the
increased complexity in running the Federal Government.
However/ even by Government standards this growth appears
excessive. For example. Exhibit II-7, on the following
page, shows that civilian and military Federal employment
in the Executive Branch has increased less than 50 percent
over the same period (about the same growth as the United
States population) including the growth in military
personnel resulting from the Vietnam conflict.

Both the internal agency review process and the 0MB
and Congressional review process have created extensive
layering in Federal R&D agencies. This results in
excessive use of technical staff and micromanagement at
numerous and high levels within the agencies. Large
technical staffs are used to evaluate programs and advise
upper management. These technical staffs who support the
management structure do not have direct line responsibility
(i.e., they do not manage or have responsibility for a
program or function). The use of these technical staffs
has grown to the point where it undermines the authority
and responsibility concept of management. 'The staffs are
so large that they have an organization and layered
structure of their own.

Two of the Task Forces specifically addressed this
issue as it applies to R&D.

o The Department of the Air Force Task Force
recommended changes in the Air Force budget
preparation and review cycle. They found that
virtually the entire Air Staff is involved in the
preparation or defense of the Program Objective
Memorandum (POM) and the budget which are done
sequentially. The Task Force recommended that
the Planning, Programming and Budget System (PPBS)
reviews and budget reviews be done at the same
time and estimated that 120,000 staff-hours could
be saved in the process. This analysis focuses
primarily on the resources used in the internal
agency review process. It does not address the
staff required to respond to the Congressional
deliberations phase of the budget process.

o The Department of Energy Task Force found an
unnecessarily expensive structure of program
direction and support in the Department and
labs. They found a complex network of program
managers and control personnel involving succes-
sive layers of people who oversee, monitor and

(Exhibit II-7 on the following page]

Exhibit H ^

COHPARED TO CONGHESS tONAL STAFF SIZE

often participate in the management of laboratory
programs. Their recommendations for improving
the situation would eliminate 600 positions in
DOE and 1,800 positions in the GOCOs (Government-
Owned, Contractor-Operated facility).

We analyzed the RSD management structure in the Army
and compared it to the private sector. The results of this
analysis are shown in Figure II-l and II-2 which follow
this page. Figure II-l presents the current R&D organiza-
tion and technical. staff in the Army. (All nontechnical
staff, of which there are many, are not shown.) As shown
in this exhibit, there are roughly 600 people involved in
technical staff positions with respect to the Army R&D
program.

This use of technical staff in the Government is ex-
tensive when compared to private sector R&D organizations,
figure shows an organizational chart for a typical

industrial R&D firm. In this example, no technical staff
serve in the top management structure. While Government
may not operate like industry, the striking difference
between these two examples cannot be justified in the
organization. In our interviews with Army R&D management,
they continually referred to this problem, pointing out
that many people have to be lined up to make relatively
simple decisions. Many can veto a decision but very few
can give a go-ahead. This causes frustrating delays, lack
of accountability and great waste in R&D program management
resources.

These staff problems are caused, as shown by the Air
Force example, by internal management inefficiencies, by
the extensive micromanagement practiced internally as well
as by external agencies, and by the Congressional budget
process. To illustrate the magnitude of the problem, we
analyzed the DOD RDT&E budget for FY 1983 and .the control
procedures used by Congress.

As noted previously in Exhibit II-4, there are 768 un-
classified items in the DOD R&D budget* There is agreement
between DOD and Congress that the Secretary of Defense has
the authority to reprogram funds up to $5 million without
prior Congressional approval. However, this agreement also
contains the provision that reprogramming of any individual
item changed by Congress in the budget deliberations cannot
be done without prior approval of Congress. A review of
the FY 1983 RDT&E budget reveals that roughly 90 percent of
the items were altered during Congressional deliberations.
This has the effect of eliminating the reprogramming
authority.

[Figures II-l and II— _2 on the following pages]

Picture I1~A

DOD (ARMY) ORGANIZATION CHART

1 T UNDER SEC OE /

1 SIC. OF OEFENSt

^tP SEC OF DEFENSE

— ^ OEEENSE

— ■' j R»E

~ SXtCUTIVE SECRET AA1 AT

SBT**

’ SEC OE

ARMY ]

UNDER SE(

OE ARMY ]

« « ■

/ 103 \

I m^O TtCHl

"CMtEF Of SIAM-TJ? 710
TWC ARMY

CMiBf Of SfAff

TTofT^R Of AHMY STAff

J oc^ COMO Otw ^
I asst STAff tACM

ZS 1

p'i

eradcom

(» NV b tot pmECTO^

0€7 QiWECTOW
3 asst DlWtCTQW

. NUMBtM OF EQUIVALEWT
OEPAATMEWTS

•« numbew of persons
including staff

average span oe control

(DIRECT REPORTS!

STO 2D

Figure II~2

$2 BILLION INDUSTRIAL R&D FIRM

VICE

CHAIRMAN OF
THE BOARD

1* * ••• r*

RREStOENT

2 2
EXECUTIVE
VICE RRESIOENT

3.5

VICE RREStOENT

DIVISION

EXECUTIVE

DIRECTOR

140

CENTER/LAB

DIRECTOR

4.3

DEPARTMENT

HEAD

TECHNICAL

SUPERVISOR

B.«

1SM7

MEMBER OF
TECHNICAL STAFF

NO. OF TECHNICAL STAFF

• NUMBER OF equivalent
DEPARTMENTS

NUMBER OF PERSONS
INCLUDING STAFF

••• AVERAGE SPAN OF

CONTROL lOlRECT REPORT)

nation

No. of
Managers &
supervisors

Total
No. of

Employees

Management

Ratio

s-ederal

Governinent Dept

Defense

138,066

668,150

20.7%

2,776

17,298

16.1%

The impact of this i"«hl?"elmp^

““ve?"nLSfanrp?tvrtrsector management ratios.

Average No. of
Workers Per
Manager _

3.8

5.2

Private Sector
company

IBM

Exxon

Honeywell

I Hewlett-Packard

45,600

364,796

25,604

173,000

12,228

94,062

14,856

87,388

10,608

68,000

BChnology oriented private seer

12.5%

14.8%

13.0%

17.0%

15.6%

7.0

5.8

6.7

4.9

5.4

average number, of workers
in comparison to major

The table is extracted
zational Effectiveness

from a
to be

PPSS Special Report on
released during November

Organi

1983.

Conclus i ons

As shown in the Findings^ the R&D management process,
■ly t^ose processes dealing with the annual budget
cycle# are inefficient# lead to tremendous administrative
burdens# and contribute to the cost growth being experi-
enced by many R&D programs. All aspects of this process
require change to reduce the time lags involved as well as
the level of detail required. The problem of excess staffs
in both the Executive and Leg*islative Branches is# to a
certain extent# a chicken and egg argument. From one per-
spective# they are needed to handle the growing complexity
and level of detail involved. From another# the complexity
and level of detail are growing because of these staffs.

At the same time# the Task Force recognizes that the
process can not be governed by the desired efficiency in R&D
management. The system of checks and balances built into the
system# as inefficient as they might be# has served the
country well. Nevertheless# the Task Force is convinced that
fundamental changes can be made which will improve
the efficiency of the process without harming the other
objectives served by the process.

Recommendations

R&p 2-1; Implement multiyear budgeting specifically for
R&D activities. The Task Force on Federal Management Systems
hds r8Comni6nd6d inultiyoar bud9Btin9 con^ sider6d as

an issue for further study. Many of the other task forces
have recommended that multiyear budgeting be implemented for
various portions of Government operations including R&D and
weapons systems procurement. This Task Force believes that
this concept will be helpful in solving some of the problems
associated with R&D management# parti- cularly eliminating
some of the annual effort involved in budget preparation and
review. Such an approach would also provide more stability
to the R&D efforts# providing known funding levels for future
years of essential R&D programs.

R&D 2-2; Develop a budget concept that significantly
reduces the level of detail in the budgeting of r&d pro-
As noted in the Findings section# the approval of
budgets for 1#822 individual projects for DOD# DOE and NASA
gets into an excessive level of detail. At the other
extreme# if the R&D budget for the three Services# DOE and
NASA were approved at a total level# the Congress would not
be exercising the degree of oversight appropriate to its role.

The Task Force recommends that the budget for the DOD
R&D program be presented in terms of the three Services and
further broken down into the existing budget activities (tech-
nology base, advanced technology development, strategic pro-
grams, tactical programs, intelligence and communications,
and defense-wide mission support). Within each budget activ-
ity two or three major programs would be identified for
information purposes only.

There are alternative structures that could be used for
these budget activities. In the Army, for example, it might
be more meaningful to break the R&D budget down into the
following functions:

o armament,

o aviation,

o communication,

o mobility equipment,

o missiles,

o tanks, and

o troop support.

A similar functional list could be prepared for the other
Services, DOE and NASA.

The Task Force is not in a position to specify the cate-
gories that should be used. However, some scheme to get to
more summary level information as currently used by NIH
should be developed.

R&D 2-3: Develop ways to shorten the budget preparation

and review cycle. Certain recommendations contained in this
Report should shorten the current budget cycle. The recom-
mendations dealing with strategic planning should signifi-
cantly reduce the time required for the individual agencies
to prepare the budget package for submission to 0MB. Also
the recommendations for multiyear budgeting would eliminate
the annual cycle of the budget process. The largest portion
of the cycle that has not been addressed is that taken up by
the Congressional deliberations. We recognize that this
portion of the cycle is outside the scope of the PPSS review.
Yet, we must note that it is contributing to the inefficien-
cies in Government operations.

Various Congressional budget reforms have been
recommended over the course of the last several years. One
of the strongest arguments has been made by Dr. Alice Rivlin,

former Director of the Congressional Budget Office. She
believes that Congress has overloaded its own decision-making
process. As one step to simplify the process and reduce this
load^ she has repeatedly recommended that Congress adopt a
multiyear budgeting process. Similar recommendations on
budget reform have been advanced by the current and the
former GAO Comptroller General, as well as many individual
Congressmen.

As part of the negotiation with Congress, which will be
required to implement multiyear budgeting and the reduction
in the level of detail contained in the budget, the Executive
Branch should explore ways to reduce the time required for
Congressional review. One alternative might be to separate
substantive program review (authorizations) from the formal
budget cycle (appropriations), i.e., approve a funding level
for the entire R&D program and establish an authorization
cycle that is not tied to appropriations. A second alterna-
tive might involve the scheduling of R&D deliberations early
in the overall cycle in order to shorten the time frame.

R&D 2-4; Reduce technical staff positions in all R&D
agencies . The preceding recommendations are directed toward
streamlining and revising the R&D management process, par-
ticularly the budget process. As these recommendations are
implemented there will be an opportunity to reduce the
technical staffs that have developed in the R&D management
process.

It is recommended that the number of technical staff and
.support personnel in R&D organizations be reduced to elimi-
nate confusing lines of authority and unproductive staff
work. Because the Task Force did not have the resources to
analyze the staffing of R&D management agencies, it is not
possible to specify the number of positions that should be
eliminated.

A PPSS special report on Organizational Effectiveness,
which will be released in November 1983, recommends a program
for achieving a more effective Government organization struc-
ture. Implementation of these recommendations, in conjunc-
tion with the changes recommended in the report, should
result in an improved R&D management process, operating with
a reduced technical staff.

Savings and Impact Analysis

The recommendations presented in this issue should
result in reductions in cost growth and savings in acquisi-
tion costs through improved program stability. In part,
these savings have been addressed in R&D 1 and the various

PPSS reports dealing with the agencies with primary R&D re-
sponsibility. On the following page is a listing of the
recommendations for multiyear budgeting/procurement and the
savings opportunities that have been identified in other PPSS

reports, V

These savings opportunities apply to both R&D and pro-
curement funds and there is some duplication between the
items, so the total cannot be claimed as savings opportuni-
ties for this analysis.

In order to attribute savings opportunities to these
recommendations the analysis used in ENERGY 13 will serve as
the base. In that issue, the Task Force used 5 percent of
the R&D budget as the estimated savings opportunities attri-
butable to multiyear budgeting. V Recognizing that we^are
3pplyin9 thG t3t6 to 3 b3S6^ this Tssk Forc6 will use

a 2.5 percent rate as the annual savings opportunities attri-
butable to the budget reforms recommended in this issue.

Based on the FY 1983 R&D budget of $44.3 billion, first-year
savings opportunities would be $1.11 billion. Applying a 10
percent inflation rate, second-year savings would be $1.22
billion and third-year savincs would be $1.34 billion. Total
three-year savings would be $3.67 billion.

Implementation

Implementation of these recommendations will require
Congressional approval. 0MB and the affected agencies should
initiate discussions with the appropriate Congressional staff
to begin working out the revised procedures.

3/ The Task Force recognizes that the recommendations for
” multiyear procurement do not necessarily imply a need

for multiyear budgeting. However, the increased stabil-
ity provided by multiyear budgeting would greatly enhance
the recommendations. Also the implementation of multi-
year budgeting does not obviate the need for multiyear
procurement authority.

4/ In the OSD report (OSD 23), a 7.5 percent factor was
” estimated for savings attributable to multiyear
budgeting .

Multiyear Budgeting/Procurement Savings Opportunities

Task Force/
Issue

Three-year Savi
Opportunities

Title ($ millions)

ARMY 11;

Fully funded biennial budget
for major weapon system
procurement

$ 6,600.0

ENERGY 13;

Introduce three-year budgeting

413.7

NAVY 1;

Improvements in program stability
including a two-year budget

3,000.0

OSD 23;

Reduce instability in the weapons
acquisition process

7,185.0

PROC 4;

Expand multiyear contracting
to all agencies

3,415.0

PROC 6;

Develop program management and
acquisition plan

2,940.0

USAF 19;

Increase use of multiyear
procurement and propose a
multiyear budget

2,400.0

Total savings opportunities $25,953.7

II.

ISSUE AND RECOMMENDATION SUMMARIES (CONT*D)

RESEARCH AND DEVELOPMENT (CONT*D)
R&D 3; PRIVATIZATION

Issue and Savings

Can cost savings be realized if the Government pri-
vatizes certain Federal research and development (R&D)
undertakings?

The Federal Government has a recognized role to play
in supporting R&D in the United States# but areas exist
where transfer of R&D responsibilities to non-Government
entities would generate cost savings and strengthen R&D
capabilities .

Background

According to the President's Private Sector Survey
(PPSS) Task Force Report on Privatization# "Privatization#
in a literal sense# means to turn over an activity# or part
of an activity# currently performed by the Federal Govern-
ment to a non-Federal entity." The Federal Government
often becomes initially involved in activities for legit-
imate reasons. For example, military commissaries arose in
the 1860s when the typical army post was a frontier post,
miles from the nearest city. The most cost-effective way
to provide military personnel with food and supplies was to
make the Federal Government their grocer. However, the
circumstances that originally justify Government production
of goods and services often change# so that eventually
non-Federal entities can and should take over production.

In the R&D arena. Government clearly has a role to
play in supporting and undertaking R&D activities. Con-
sider the Government role in the following cases;

R&D That Entails Major Expenses, But Whose Outcome Is
Highly Risky — There are scientific and technological
areas important to the United States that are too expensive
and risky to be developed by the private sector. Tn such

cases# the Federal Government can appropriately become
involved in relevant R&D activities. For example, the
Federal Government's willingness to underwrite the risks
involved in the transistor's early exploitation.

Very Long-term R&D — Some R&D work involves planning
horizons that extend beyond the normal planning horizons of
industry. It is appropriate for the Federal Government to
support actively such R&D. If significant progress in
fusion-based energy system research is to be realized,
Government must play an active role in its development.

Public Good Areas — The Federal Government is clearly
responsible for doing such things as maintaining the
national defense and assuring the existence of a good pub-
lic health system.

Maintenance of the National R&D Infrastructure — Only
the Federal Government possesses a national perspective on
R&D. For example, while an individual electronics firm may
be concerned about where it will find electrical engineers
to fill staff openings in its labs, the Federal Government
is concerned with having an adequate supply of electrical
engineers to meet all the corporate and non-corporate needs
of the United States. It is also concerned with developing
an adequate cadre of scientists and engineers in all other
areas of science and technology.

Maintenance of the U.S. Competitive Position in Cru-
cial Areas — While we are tar from having universal
agreement on this matter, there are many who believe that
the Federal Government should do whatever is necessary to
make certain that the U.S. does not lose its leadership
position in certain key scientific and technological areas;
e.g., in electronics, computers, and aerospace. This view
has arisen in response to foreign challenges to American
dominance in these areas, challenges that have their ori-
gins in foreign government subsidies of their domestic R&D
efforts (e.g., in Japan, France, and many Third World
countries).

While Government has an important role to‘ play in sup-
porting R&D efforts, care must be taken to make certain
that legitimate Government-supported efforts do not, over
time, become incursions into non-Governmental terrain.

Methodology

The R&D-related issues of all the PPSS Task Forces
were reviewed to identify areas where Federally supported
RSD can be privatized across a broad spectrum of Federal
agencies. Interviews were conducted with high level per-
sonnel in both the Federal and non— Federal sectors. Rele
vant literature was reviewed.

Findings

The PPSS Task Force on Privatization made a distinc-
tion between the Federal Government providing goods or
services and producing them. There are many goods and
services that the Federal Government can legitimately
provide to the public, but the number that it should
produce is far smaller. In this scheme of things,
privatization primarily entails reducing the Federal
Government's role as a producer of goods and services.

In our Report, we carry the concept of privatization
even further. Our investigations have led us to the fol-
lowing three broad findings:

0 The Federal Government should divest itself of
R&D tasks:

that would otherwise be effectively done
were the Government is not involved.

that can more efficiently be done by non-
Government entities.

o The Federal Government should create an environ-
ment that stimulates increased non-Federal R&D
activity in certain target areas.

o Non-Federal entities should be profitably encour-
aged to use Federal R&D facilities and the re-
sults of Federally sponsored R&D.

There are two basic ways to accomplish divestiture.

One way is to farm out to non-Government entities tasks
that Government legitimately needs to have performed.

Thus, while Government would. provide necessary R&D ser-
vices, it would not be pr oducing them itself. Examples
include the environmental testing done by Environmental
Protection Agency (EPA) field workers throughout the United

States, and the later development phases of Department of
Defenses (DOD) research.

The Federal Government can also divest itself of R&D
undertakings by getting out certain R&D areas entirely.

This should happen when it is obvious that the R&D would be
carried out by non-Federal entities even without Government
involvement r or when it is determined that the R&D is not
meritorious for Federal involvement. It is assumed that
R&D projects that were meritorious from the private sector
point view would be picked up. The following are some
specific examples of programs that the Federal Government
should divest itself of:

o The PPSS Task Force examining the Tennessee Val-
ley Authority (TVA) determined that the Federal
Government should phase out its support of the
National Fertilizer Development Center (NFDC).

The NFDC has been quite successful in carrying
out its mission. At this point private funding
sources can support NFDC's work. A gradual
phase-out of Government support would yield a
savings of $12.1 million in the first year, $27.1
million in the second year, and $44.6 million in
'the third, for a total three-year savings of
$83.8 million (See BUS-TVA 7).

o In reviewing the Cooperative State Research Ser-
vice (CSRS), the PPSS Task Force on the Depart-
ment of Agriculture found that 20 low priority
CSRS projects could be dropped by the Federal
Government, transferred out of the Agriculture
Department to other agencies or transferred to
non-Government entities. Those projects trans-
ferred to non-Federal entities would save the
Federal Government over $10 million a year in
expenses, for a total savings of $35.4 million
over three years (See AG 54).

o The PPSS Task Force on the Department of Energy

(DOE) concluded that DOE should not support proj-
ects that can be adequately handled by the pri-
vate sector (e.g., ocean thermal energy conver-
sion). While the Task Force did not suggest a
dollar figure for the savings realized by priva-
tizing certain energy R&D efforts, it is clear
that the savings would be very large, ranging in

the hundreds of millions or even billions of dol-
lars (See DOE ID*

o The PPSS Task Force on Privatization determined
that if funds for the fifth space shuttle were
collected from the private investors, cost avoid-
ances totaling $460 million in ^he first year,

$506 million in the second year, and $556.6 mil
lion in the third year could be realized for a
three-year total of $1,522.6 million. Currently,
two shuttles have been procured and constructed
with two more in the works. There are no plans
for a fifth shuttle. However, it seems dear
that the demand for space shuttle services

exceed the capacity of the four

it is reasonable to assume that a fifth shuttl

will have to be built. By bringing
vestors into the procurement of the fifth snut
tie, the Federal Government would be making a
significant step in privatizing

day be a major American industry (See PRIVATE 3).

It should be recognized that privatization can be en-
couraged through indirect means. By creating
ment that reduces the level of risk in R&D investments, the
FeSeral Government can stlmelate increased RSD activity in
thr«eas that the private sector normally avoids.

The Federal Government should continue to explore
mechanisms such as the R&D tax credit, the limited

partnership (R&D LP) and R&D Domt ventures (R&D JVs).

The Federal Government undertakes large quantities of
R&D either in-house or through contracts. A significan
coLJqSence ?s RiD assets valued in <=hVbiUi=ns of dol-
lars These take the form of laboratories, equipment, pro
auction fIcUUies, and a large cadre of well-trained
scientists and engineers. They also

an enormous amount of technology patented by the Federal
Government. To the extent that these assets ere amassed by
the Government, they are not being

The R&D Task Force suggests that attention focus -on the

1/ It has been estimated that the annual savings in

Federal outlays for energy research could amount to $
billion, with greater future savings (Heritap
Foundation, Backgrounder $270, "Privatizing Federal
Energy Research," June 7, 1983).

following three ways of increasing the flow of technology
from the Federal to the non-Federal sector:

o Non-Federal entities can be given improved access
to the facilities of Federal laboratories.

o Information on Federally supported efforts can be
more effectively disseminated to the public.

o Non-Federal entities can be encouraged to license
Government-owned patented technology.

While the second and third items are discussed in sep-
arate issues in this Report, improved access to the facil-
ities of Federal laboratories is briefly discussed here.

DOE labs have ’user facilities" in which either Government
or commercial entities can pay to have experiments con-
ducted or analyses made. A prime example is Brookhaven
National Laboratory's Synchotron Light Source, a unique
diagnostic tool for studying such commercially important
materials as alloys, catalysts, and polymers.. The facility
is available on a time-sharing basis. Despite recent pub-
licity, some potential users (including large beneficia-
ries) may still not know of the facilities existence, much
less its possible application to problems with which they
are concerned.

Various gains can be realized from closer interaction
between the national laboratories and the private sector.
The private sector would get access to specialized equip-
ment and expertise, in addition to gaining insights into
high-risk, long-term work being performed at the labs that
may ultimately have commercial significance. For its part,
the laboratories would get a clearer value. They would
also be able to identify and discontinue research in the
Government sector that private companies and research in-
stitutions are already performing.

Conclusions

The Federal Government has a legitimate role to play
in R&D. This is particularly important for maintaining the
national science and technology infrastructure and in the
areas of long-term, high-risk R&D and public good-related
RiD. However, the Government must be wary of undertaking
R&D efforts that could be adequately undertaken by non-
Government entities.

There are many R&D efforts currently funded by the
Federal Government that should be turned over to the pri-
vate sector, or abandoned if the private sector is not in-
terested. The two most noteworthy examples are the Clinch

River Breeder Reactor Project and the Rational Fertilizer

Dsvslopnisnt C6nt6r#

There are several different

tion of Federal R&D S&D task to non-Government enti-

ties,, it can an atmosphere that encour-

S|«"grra'tlr“ri?4te sector Participation in

^“2rti«Vo‘?are''^«rei fd^vaiL^rorthe fLits Of govern-
ment-sponsored R&D

RecomiT'endations

p»,.ral agencies sh^r

where they provide ^aD~ROO ^ Where logical, cn«r

i-So!:rd'rt ve^ t^ tl LnlflrtHi^ct ion of these goods and
Je?ii=erw non-Federal entities.

Federal agen^aa ahorr

the RSD activities, they sop, ort compere

gjj^

« •■“••w-

orn -i The pam,^orai Government should strive to

.,,.rrlri;^nmenr that encuuiages^increaseu^y. >|t_^

HSU incLtives^iL^
T-^f?pd ^artne^cHins and loint venture?:

impact Analysis

The majority of benefi« ^“‘''®4amp?e,'’U''?rri?f icS?t
cannot be t®adily quan i i • revenues gained

to speculate on the value o savings that might be

^r^L?reririetfi;irmafreJ“?o?Jer!ncrease\he productivity
of the R&D process.

TO illustrate the. savings Prrrgs'ide«Uied''w'”her
of R&D we have summarized the savings iaentitt« j

?isr?ir=es in the table on the following page.

Cost Savinqs/Avoidance
($ millions)

Source of
Savings

Year 1

Year 2

Year 3

Three-year

Total

National Fertilizer
Development Center

$ 12.1

$ 27.1

$ 44.6

$ 83.8

Cooperative State
Research Service

10.7

11.8

12.9

35.4

Clinch River
Breeder Reactor _2/

200.0

600.0

5th Space Shuttle

460.0

506.0

556.6

1,522.6

Total t682.8 t744.9 t814. 1 ^2.241.8

These savings are shown here for illustration purposes only
since they have been included In the other Task Force re-
ports* They are not counted as savings attributable to
this issue, but are included in the Compendium Issue (R&D
8) .

Implementation

Statutory and administrative authority exists to
implement all the recommendations offered here (e.g.,
Stevenson-Wydler Act, 0MB Circular A-76). Implementation
can be undertaken at the agency level.

The savings for the Clinch River Breeder Reactor are
estimated since there are no annual appropriation
requests for the project. In FY 1983, $194 billion
was appropriated for the project. DOE requested that
Congress appropriate $1.5 billion to be obligated
through 1990 which, when combined with planned private
sector funding would complete the project. Therefore,
it was assumed that $600 million would be saved in
three year. Total savings through 1990 would be $1.5
billion.

II. ISSUE AND RECOMMENP^T^TON SUMMARIES

ppcP^prH AND development (C0NT*D_I

P&D 4- tmppOVED MANAGEMEN'T' OF RESOURCES

«|::^£ARCH LABOKAIORTl;

Issue and Savings

Can Federal research
reduced by managing funds
ment of Federal research

and development (R&D) costs be
, personnel, facilities and equip-
laboratories more effectively.

Savings from improved
mated to be $153.0 million
million in the second year
year for three— year total

resource management are esti-

in the first year, $168.3
, and $185.1 million in the third
savings of $506.4 million.

Background

over the past y^l^^J^'total^FedeHl fundin^for

sectors:

indistty. Federal l>^f»5°“”j3tS?ies‘hI”bee“»lative^
fraction going to Federal la -g--ral, industry is princi-
constant over t the Federal laboratories in

pally involved, in u a„d universities in basic

development and applied research, page) . There

research (see Exhibit II-8 on ^°Ji°'^i2ppinrcapabili-

are, however, many exceptions. areas of

ties among °aTv difficult to identify capa-

»u!y^Lr,re^tr£o^e;;Uctor.^^:n^

englnlifing to support the more applied aspects
of their work.

Vices to the to^agency planning, program

their research, they the laboratories'

^ornl«irc^i?-^S^:f pen met, h^^^^

“tn“!tt«now^ra?rsnin?2^ntlJ1?4a^2f?esLrcb

[Exhibit II-8 on the following page]

Exhibit II-8

RELATIVE PERCENTAGE OF SCIENTIST AND ENGINEERS
EMPLOYED IN R & D, BY SECTOR

LABORATORIES

NATURE OF R & D BY SECTOR

laboratories <INCL. INDUS. OPERATED

(INCL UMV OPERATED FEDERAL LABS-

FED LABS.)

SOURCE: National Science Foundation

u.-M¥iac The Federal laboratories have responded to
capabilities. The . wavs, as have industry

changing environments ®^®"ator ies have remained

stftiS^'whiirithers’have changed their

static, _ The Federal Government must ascertain

2S«het these Ubitatoties are attending to the most rele-
vant activities.

The Federal Government owns

tcries. these 700 If tJs^'XoJe ti”' oSX^hlvf fewer
programs and scope ,®. . . under $300,000 while others

than ten employees and budgets unaer ^ exceeding $200
have over 2,000 employees with budgets exceeoing

million. _!/

tutes, activici , Veterans Administration (VA),

Government's tally of 700 laboratories.

Although it varies greatly from agency to agency, on

'h"!f^:r:reIr'S;/n:orin^ lu^dl? ■

r£r5e^u^fing1nl^ru^r?a?Life?^“°lnc!uStnr«

intramural R&D.

Federal Laboratory Directory
Commerce, National Bureau of

1982 , Department
Standards.

Funds for Reseatch and Development Fiscp^
1981. 1982 and 1983, National Science Foundation,

Years
p. 30.

DOD has 73 laboratories, of which 35 serve the Army,

24 the Navy, and 14 the Air Force. These laboratories
employ more than 60,000 people, of which 80 percent are
civilian, except the medical and Air Force labs which are
50 percent civilian. The Air Force accounts for 46 percent
of DOD's R&D budget. Nearly two-thirds of the annual cash
flow is Research, Development, Test and Evaluation (RDT&E)
money. The balance of the cash flow comes from procurement
funds that are used for the acquisition of initial hardware
systems and associated support, particularly product
improvements.

NASA operates eight major centers throughout the
country. NASA's technical expertise and facilities, such
as wind tunnels, are national resources often used by pri-
vate industry, DOD, the Department of Commerce (DOC), the
Department of Energy (DOE), other Federal agencies, and
foreign governments. As a result, many of NASA's activi-
ties are reimbursed by the using agency. In the FY 1983
budget submission, NASA estimated that 16.5 percent of $1
billion of NASA work will be reimbursable. This work pri-
marily relates to space shuttle operations and space appli-
cations.

Methodology

Issue team members interviewed outside advisors as
well as 85 key staff members in NASA, the Office of the
Secretary of Defense, the Defense Advance Research Projects
Agency, former DOD officials, the National Academy of
Sciences, the National Science Foundation, the American
Association for the Advancement of Science, the General
Accounting Office, DOC, Office of Management and Budget
(0MB), and other Federal agencies.

Issue team members visited ten DOD laboratories and
five NASA centers to gain a better understanding of Federal
research facilities and programs. The DOD laboratory site
visits included:

o Night Vision and Electro-Optics Lab, Fort
Belvoir, VA;

o Mobility Equipment R&D Command Laboratories, Fort
Belvoir, VA;

o Harry Diamond Lab, Adelphi, MD;

o Combat Surveillance and TGT-Acquisition Lab, Fort
Monmouth, NJ;

O Aviation RSD Laboratories, Moffet Field, CA;

o Naval Medical Research, Bethesda, MD;

-o Army Medical Research Institute of Infectious
Diseases, Fort Detrick, MD;

o Medical Bioengineering R&D Labs, Fort Detrick, MD;

o Army Institute of Dental Research, Washington,

DC; and

o Walter Reed Army Institute of Research,

Washington, DC.

NASA installations visited include;

Goddard Space Flight Center, Greenbelt, MD;
Langley Research Center, Hampton Bays, VA;
Ames Research Center, Palo Alto, CA;

Marshal Space Flight Centerr Huntsville^ AL
Johnson Space Center, Houston, TX.

and

Laboratory directors and professional staff members
upre interviewed during these visits. In addition to these
personal contacts, the issue team analyzed numerous rele-
vant published background documents.

Findings

Based on Task Force interviews, laboratory rnana^^^
hhP dpvelooment of "centers of excellence.,. The
clllllt of centers' of excellence, utilized more ana more,
inJol?es the concentration of efforts to pursue research in
t «?ilrarea and centrally locate the resources to perform

that research. This concept recognizes that some critica

mass of resources is required to conduct first-rate
research programs. Along the same lines, ^|}creased coordi-
nation among R&D laboratories has been cited as desira 1

to atoid excessive program overlap. °°° ts
a. c— V i ce oroQTains to insxiiniz© ths b6ri6rits

of the Aseist.nt

EMtgy weapons has been established to coordinate the
efforts of the Services and defense agencies in this
sp«Iftc ptoglam Lea. A concerted effort to reduce dupU-
SniLof effort and enhance productivity is being made.

NASA is already using the concept of centers of
excellence Each cLter has a specific set of goals, which
haroermitted the avoidance of nonproductive RSD overlap
among centers. Each center concentrates its efforts on
specific areas of expertise.

There is no systematic ongoing process for evaluating
R&D laboratories. Each Federal laboratory and its sponsor-
ing agency generally have procedures to review and evaluate
the efforts in the laboratory on an annual basis. However,
these reviews do not generally cover the scope and merit of
the science and programs being conducted in the labora-
tory. DOD, in particular, has experienced problems in this
area. Each Service has its own procedure for evaluating
R&D programs and laboratories. The Joint Deputies for
Laboratories Committee is a notable attempt at an overall
evaluation of the laboratories, but most similar efforts
have not been totally effective. In a recent review of DOD
laboratories conducted by the Under Secretary of Defense
for Research and Engineering (USDRE), the establishment
of an effectiveness review process for the laboratories was
recommended, reiterating the need for a systematic, ongoing
process.

The current method of appropr iating laboratory funding
has resulted in indecision and uncertainty concerning fund-
ing well into the fiscal year for which the funds are
needed. As described in R&D 2, R&D Management and the
Budget Process, many aspects of the budget process impede
effective management of the R&D labs. These problems pre-
clude a normal planning process and have a negative effect
on the R&D work of the laboratories. It is highly doubtful
that the problem of Congressional delays and dragging out
of funding appropriations will go away in the near future.
Multiyear procurement by the laboratories of material and
services would, however, provide more efficient planning
and execution of the R&D process. In addition, more flexi-
bility of the laboratory directors to allocate funds within
their laboratories would help alleviate the problem 'through
more efficient management and flexibility of action.

Staffing levels for Federal R&D laboratories have
steadily decreased over the past ten years. The DOD
Laboratory Management Task Force, composed of a broad array
of senior level representatives from within DOD, reported
that manpower ceiling reductions have been the greatest
single factor negatively affecting the contribution of
laboratories over the past 15 years. In the past decade,
the Army laboratories were reduced in size by more than
one-third, with reductions occurring every year. £/

2/ Dr. Robert J. Hermann, USDRE Independent Review of POP
Laboratories , March 22, 1982.

y DOD , Report of the DOD Laboratory Management Task

Force, July 1980. * ’

Most POD personnel interviewed said that the ceilui
on service salaries made it difficult to hire or

..a^ain tnn civilian researchers" Federal laboratories
report a gradual loss of tecnnical personnel to industry.
Furthermore, entry level salaries are not sufficiently
competitive with private industry to attract the top
college graduates.

A large portion of the Government's aging research

facilities have suffered deterioration and are in neeq_^_
modernization. The' current annual investment in
and equipment is rapidly becoming inadequate
mission performance. Many POD facilities that the Task
Force visited are old and becoming inadequate for current
use. Some facilities, which are

have received reasonable modernization through the years,
remain highly useful. Others, however, have become or are
becoming marginal in their utility.

The equipment in these facilities is in a similar
state. In some instances these tools are merely old. In
other instances they are outdated and J®'

because of age, but because of the rapid growth of techno-
logy and mission requirements.

This was an issue raised by most of the laboratory
directors interviewed and noted in published studies. Many
POP laboratories are inadequately equipped -primarily
because the Services principally fund ongoing, analytical
programs and do not make adequate provision for genera
Impose and technical equipment needs. The outdated equip-
ment in the laboratories is costly to maintain and wastes
manpower. As a result, productivity suffers. These
facilities and equipment are an essential element of th
work environment and as a consequence greatly affect the
productivity of the laboratories. Based on Task Force
interviews, the decline in facilities could seriously
jeopardize the abilities of the laboratories to meet

mission challenges. A review of POP torv^

bv USDRE in 1981 concluded that many of the BOD laboratory
facilities are substandard, inadequate, obsolete, or energy
deficient and need to be updated. W

The designation of a facility as a Federal research
and r^At/Aiopment laboratory is broadly and genetically
;,nmied to a variety of Government-sponsored activities.

;[;^rrare over75o facilities designated Federal K.D
laboratories currently in operation. A number of these
facilities are small and engaged in what would be more

pr. Robert J. Hermann, o£. cit .

properly described as data gathering or monitoring func-
tions, not basic or applied R&D. The U.S. Geological
Survey, for instance, operates an extensive system of field
offices necessary to gather and apply data related to their
mission. Another example is the VA, which operates 60 "R&D

"ith ten ot more personnel primarily
engaged in studying problems arising during the care of
veteran patients. These facilities are in sharp contrast
to mor6 trsditional R&D laboratories. The ten largest
laboratories, for instance, each employ a. staff of more
than 5,000 personnel. Overall only 388 of the 700 R&D
laboratories have a staff of ten or more employees. As a
portion of the budget, those labs with 100 or fewer per-
sonnel account for only 11 percent of the total operating
costs for Federal R4D labs (see Exhibit II-9 on the
following page).

Federal research and development laboratories are
exempt from the provisions of A-76. In the March 29, 1979
version of Circular A-76, r&d was exempted pending develoo-
ment of criteria for determining which R&D work was Govern-
mental and which was commercial activity subject to A-76.
The proposed and final revisions exempt R&D entirely from
the reguirements of the Circular. However, several commer-
cial activities in support of R&D are subject to the pro-
visions of the Circular.

Conclusions

The development of centers of excellence for research
should continue. The concentration of resources permits
the creation of the critical mass necessary to provide
effective research. The trend — a positive one — within
DOD and NASA is toward more concentration of R&D efforts.

Consideration should be given to consolidating
selected Federal R&D laboratories to achieve efficiencies
Based on findings from other PPSS Task Forces, there are
R&p laboratories that could benefit from consolidation.

This Task Force did not examine this issue in depth and
^5®li®ves that further study is required to determine the
potential cost savings and benefits to be derived from
consolidating selected Federal R&D laboratories.

In addition to looking at the laboratories for
possible consolidations, the 700 Federal laboratories should

(Exhibit II-9 on the following page]

be evaluated to determine which ones are actually conduct-
ing research and development and classify only those as R&d
laboratories. Those facilities that clearly do not conduct
actual R&D should be reclassified as to their actual func-
tion. This would preclude the broad application of regula-
tions and legislation to facilities with very different
sizes, facilities, and missions.

The current exemption of R&D from application of 0MB
Circular A-76 is not justified. There remain areas of R&D
where the private sector would be well suited to conduct
work that is now done by Federal laboratories at lower
cost. Monitoring and testing functions conducted by many
of the small facilities sponsored by the Environmental
Protection Agency, National Oceanographic and Atmospheric
Administration, U.S. Geological Survey, and others are
prime examples of areas where contracting out could save
significant amounts of money.

The cost of financing R&D is rapidly increasing for
the Federal laboratories as well as for civilian-owned and
-operated facilities. The competition for skilled technical
personnel and the complexity and sophistication of modern
equipment have made R&D, particularly in the areas of high
technology, an expensive undertaking. To control these
increasing costs, the most effective and efficient manage-
ment possible must be applied. Many of the overall manage-
ment problems that affect the R&D labs are covered in R&D 1
and 2 since these issues brave a major impact on the labs.

Based on Task Force findings, the overall quality of
facilities, equipment and professional staff in the Federal
R&D laboratories is declining, while the technology needed
to support today's requirements is becoming more costly a^d
sophisticated . Improved management of resources is
required to upgrade the quality of facilities and staff.

The current Federal pay schedules significantly hand-
icap the laboratories in recruiting and retaining well-
qualified scientists and techniciai^ Federal pay rates
and policies for personnel in the science and engineering
disciplines are not comparable with private sector pay for
the same level of work.

Any decline in the quality of R&D facilities seriously
jeopardizes the ability of laboratories to meet mission
challenges. The lack of modernization of many laboratories
inhibits work productivity and slows developments. In
addition, these facilities are not able to attract and ’
support the highest quality technical personnel. A
modernization program geared toward both updating and
replacing as well as anticipating future needs should be
instituted to address the problems of aging facilities.

provisions should be made to
monh on a timely basis. Procurement policies should

expeS!e« acquisition of state-of-tha-att equip-

ment Replacement of obsolete equipment with more
ment. Repxacemem. « costly to maintain will

efficient equipment that is less costiy

result in overall cost savings.

Recommendations

4-1: Additional centers of excellence for R^D

rp<;earch should be form^ Even though many organizations ,
inliuding are utTTIzing this concept to a greater

extent, the formation of additional centers of excellenc
would result in the following benefits:

more intensive research on given technologies;

greater purchasing power for sophisticated
equipment;

o reduced duplication of work efforts within given
technologies; and

o lower administrative and operating costs through
better utilzatipn of resources.

R&D 4-2: The Executive Branch should form a labora-

broaram evaluation feam. To ausut. . high
labLatorv effectiveness, a systematic approach
evaluation is necessary. Evaluating laboratory P^°g^
neriodicallv will help reduce the amount of money that is
^ ioH on nroiects that will not result in substantial

l«qer key labs shoud be conducted every three years. The
following areas should be reviewed:

o program overlap;

o laboratory staffing, facilities and equipment;

o mission and research congruency; and

o technical effectiveness of the laboratories.

Each laboratory will continue to be responsible for
conducting annual technical reviews. The periodic reviews
will provide a comparison among laboratories and will serve
as one basis for program and funding decisions.

,1 Executive Branch should undertake a

potential benefits "of consolidating

FHer^L interviews, '

gp?arho^ strong evidence, that suggests consolidating

cos^sIvinag^^^ih^^S laboratories can result in substantial
. '^^^93. The Task Force currently has insufficient

£?om cl„«u3aUon!'’"'‘“' laboratories that would benefit

Kia r, ^ Pi rectors of Federal R&D laboratories should

FmphS!! budget appropriations. Liii

emphasis should be placed on specifying budget items bv

Object code and more flexibility should br|!5en triaLra-

determining how the funds will be
objective of increasing directors'

resoSrLr®'^m^^%“®! improved management of

... * The funds can be utilized in those areas that

will most benefit the laboratory.

^^^4 — -Administrative and legislative actions
fri create; at Government-operTt^

^■^^^"■^^f^a/technioal oarsonnai' system
^depen^t of the current Civil Service personne^7Fg^a^r^

IS action would alleviate to some degree the disadvan-
taps now faced by the Government labofaHrlel t^att^Sct
rpain, and motivate scientific and techni^rpe^sS^e!
required to fulfill efficiently and effectiveirtheir
agency-assigned missions. ^ ^

Establish a set of guidelines which would
f?.^ ? constitutes an R&D laboratory. Reclassif^hngg

1 - guidelines but^ now included ^

the list of /uu laboratories." These guidelines should
requirements that the facility, as its primary
activity, be engaged in basic research, applied research

n»anagement of R&D. Those organizations '

FedJjal labfrf?«r^ from designation as

in ^ ^ those which are engaged primarily

in routine quality control and testing, routiL service

dinnenin^tion^°ft?‘'^°?^"'®^^^?^ surveys, information
^ reclassification would take

included in the category of R&d laboratories
nd place them into a more appropriate category such as

fa^ilinj^^tn^^'^T?- facility, medica/support

facility, etc. This reclassification would open the door

to more appropriate application of "r&d laboratory" regula-
tions and requirements. ^-otory reguia-

R&D 4-7; Remove current exemption of R&D froin the
application of the requirements of 0MB Circular A-76; In
the March 29, 1979 version of the Circular » R&D was exempted
pending development of criteria for determining which R&D
work was Governmental and which was a commercial activity
subject to A-76. The proposed and final revisions exempt
R&D entirely from the requirements of the circular. How-
ever» several commercial activities in support of R&D are
subject to the Circular's provisions.

Savings and Impact Analysis

The major benefit to be derived from implementing the
Task Force recommendations is improved productivity. Based
on Task Force interviews with private sector experts, it is
estimated that productivity increases of up to 5 percent
could be realized. Since the implementation of these recom-
mendations will also incur costs related to the conduct of
the evaluations, modernizing facilities, replacing outdated
equipment and hiring additional staff at higher salary
levels, the Task Force assumes that only approximately 1
percent of actual net savings will be realized on the
Federal laboratory budget. Using the FY 1983 figure for
intramural research of $10.2 billion, the savings oppor-
tunities would be $102 million in the first year.

Removal of the current exemption of Government R&D
from application of 0MB Circular A-76 would conservatively
allow 5 percent of the current laboratory in-house budget
to be contracted out. Again using a conservative estimate,
a 10 percent savings on the contracted-out work would be
realized. Using a base of approximately $10 . 2 'bill ion as
that portion of the laboratory budget spent in-house, ?51
million per year could be saved.

The following savings are estimated based on 1983
budget figures and the current Federal laboratory orga-
nization. Reclassification of facilities to define as R&D
laboratories only those major installations conducting
actual R&D would result in a broader application of A-76
and a small increase in savings.

An analysis of potential cost savings is as follows:

millions)

Year 1

Year 2

Year 3

Total

Savings resulting
from productivity
increase

$102.0

$112.2

$123.4

$337.6

Savings resulting
from increased
use of A-76

51.0

56.1

61.7

168.8

Total savings

$153.0

$168.3

$185.1 ■

$506.4

Implementation

Implementation of r&d 4-1 (centers of excellence), R&D
4-2 (lab evaluation team), and R&D 4-3 (lab consolidation)

agencies. Congressional action will
be necessary to implement R&D 4-4 (lab directors have more

i ^'''^^et), R&D 4-5 (scientific/technical person-

nel system), r&d 4-6 (reclassify facilities), and R&D 4-7
(remove exemption).

PPgEARCH ANT) development ( CONT

Issue and Savings

can changes in the manner in ™nrove

improve
increases
( c)

Revision in the ^J^otiat ing^pr incipl^
reimbursement 2/ ® _.^tunities of $117.2 million in

fhrarU^^eLrtm!5^^urorrn^tJ. secoSa year, ana $141.8

„i 1 lion in the^tM ra^year .

thruni^erfitTL'and f

rates. Actual savings to be reaiizea woux
these parties.

tunities over
ar e » in part y
tions between
indirect cost
determined by

1/ The Taah Force ^^^nires that the S-ern.ent f^^naing^of
research ^?"?“fu®'^aisti!lction basea in the specificity
orthrscop^e Pf^the worh For purposes

nrifnofl^J-t'anf since the same cost principles
apply to both forms.

V The Pf-i^ent's Private^Sector Survey

nLlth CarfFinLcing Aaministration Task Force identi-
Health aroa for savings opportunities in the

fied this as an J Health”(NIH) . They recommended

National Institutes of Health INini. by 10

that f^imbursement tor inait i-ecognizes this as an

percent. The RSO Task Force ai ^ is slightly

area with savings potential, uur ant'
different .

Background

1940s the United States Government has empha-
sitifs research performed at univer-

leSel of.^PeLri? f^"! a strong research enterprise. As the

financial support grew, the relationship •

complex aSd sjibiotic!®^ Government became increasingly

1983, the level of Federal Government financial

iT^?n in reached ^4.7 billion (see Exhibit

PAdiSA? riifA percent of the total

Federal research and development (r&d) budget. It continued

to account for almost 70 percent of all monies spent on re-
search at universities (see Exhibit II-ll). Today, there are
approximately 800 colleges and universities condu^Ung

sponsored research, 100 of which receive approxi-
mately^75 percent of the Federal research funds (see Exhibit

(Exhibits II-IO, II-ll and 11-12 on the following pages]

« BILLIONS

EXHIBIT II-IO

Trends in Total Federal R&D Budgets and
rpderallv Supported University Research

TOTAL R&D BUDGET AUTHORITY

FEDERAL GOVERNMENT SPONSORED R&D AT

UNIVERSITIES

Exhibit II-ll

SOURCE OF R&D FUNDING AND TYPE OF
R&D PERFORMED AT UNIVERSITIES

SOURCE OF UNIVERSITY R&D FUNDING

1172

1M1

TOTAL: $2.t3 BILUON

TOTAL: $6.60 BILLION

TYPE OF R&D PERFORMED
BY UNIVERISITIES

SOURCE: AAAS '

RfrD REPORT VII,
1S82.

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<?ince World War Ilf Government agencies have used a
variety of mechanisms to promote quality basic re-

MTU fnr evamole. was among the first to provxae

funrs’’^ bi=;e«=a!*?"li«=h. NIH

system to reach decisions on funding ?tant applications
baled upon the highest scientific merit. ' ‘^is sys

jrsrEsiS-'iH

^ o-ri-j nth's Peer Review Systent for use in its grant pro
«ams agencieslluch^ Department . of Defense

(DOD>; extended their existing co’i'tract Peer

sponsor university research but did not adopt the NIH Peer

Review model*

Initially# most award systems appeared to
11 PoHpral funds were available and competition for funds

tions due to declining enrollments, shrinking endowments,
and escalating operating costs.

Tha financial constraints on both '^•'e Government and
Che universities, as well as differences in goals, have

created controversy and «««rl!ty

n^raaLrch are often difficult to integrate with the
cLernment's need for effective cost reimbursement and
accounting procedures.

The Government has attempted streamline
reDortinq requirements for universities i

aS revision^of the Office of Management and Budget (0MB)
r' • lave i ')\ ("Cost Principles for Educational Institu-

In^Aiuo (-IrlnmnS Agreements with Institutions
I) SloLrEdIcatlon, Hospitals, and Other Nonprofit Organi-
sations*) among others. Nevertheless, grant accounting

research.

Methodology

The Task Force focused its detailed review for this
IHm! These three agencies were selected because

they fund about 65 percent of all Federally funded research
performed at universities today (see Exhibit 11-13 on the
following page).

Although the Task Force's in-depth analysis concen-
trated on these agencies to obtain a more complete under-
standing of R&D Government-wide, the Task Force reviewed
reports of, and conducted interviews in, several other
agencies, including;

o White House Office of Science and Technology

Policy (OSTP),

O 0MB ,

o General Accounting Office (GAO), and

o Department of Commerce (DOC).

These discussions and additional analyses of previous
studies resulted in a set of preliminary issues that were
developed in outline and questionnaire form. These issues
were used in follow-up conversations with officials from
the University Council on Government Relations (COGR) and
the National Academy of Sciences (NAS). The issues were
then refined and served as the basis for visits to nine
major universities, which together receive about 25 percent
of total Federal funds for university research. The issue
team interviewed university administrators, department
chairpersons and faculty researchers during campus visits.

The universities were selected on the basis of their:
(a) representation among both public and private institu-
tions, (b) geographic distribution, (c) varying indirect
cost rates, (d) difference in cognizant audit agency
(Health and Human- Services (HHS) or DOD], and (e) differ-
ence in Federal funding patterns (i.e., different funding
source among NIH, NSF, DOD, Department of Energy, National
Aeronautics and Space Administration, and Department of
Agriculture). Universities visited were:

o Harvard University,

o Massachusetts Institute of Technology,

o University of North Carolina,

o University of Michigan,

o University of Illinois,

o Northwestern University,

o University of Minnesota,

o Stanford University, and

o University of California.

(Exhibit 11-13 on the following page]

exhibit 11-13

Source:

D I S TR I BUT I ON OF
* AMONG MAJOR

UN TVFPgTTY R&D SUPPORT
"federal agencies

1981

AAAS R&D REPORT VII, 1982.

Findings

The subject of indirect cost recovery is a major source
of controversy between the universities and the Federal Gov-
ernment . Although the controversy has heightened in recent
years because of attempts by various Federal agencies to
control the growth of the rates, its origin goes back to
the basic principles involved in calculating indirect costs.

0MB Circular A-21 sets forth the basic principles to
be used in determining indirect costs. This Circular has
evolved based on the active participation of the universi-
ties and the Federal Government. The issue that has been
the most troublesome is the calculation of the labor-based
indirect cost pools, particularly departmental administra-
tion. This cost pool is determined based on a system of
payroll distribution, which can take several forms, includ-
ing:

o a planned, budgeted, or assigned allocation of
effort, which is documented and confirmed after
the fact;

o an after-the-fact activity record; and

o multiple confirmation records.

Each university applies these principles in a slightly
different manner based on its own institutional structure
and accounting practices. The following table presents' the
average indirect cost rate and its components for all
universities under the cognizance of HHS.2/

Average Indirect Cost Rate as a Percent of Direct Cost

Operation and Maintenance 11.7%

Departmental Administration 14.5

Sponsored Project Administration 3.0

General and Administration 7.3

Library 1.9

Depreciation/Use Allowance 4.2

Student Services 0.3

Carry Forward 0 . 7

Total 43.6

2/ The Federal Government uses the single audit concept
for universities. Responsibilty for approval and
audit of the indirect rate for any one university is
assigned either to HHS or ONR as the cognizant agency.

As Shown above, the largest indirect cost component

is departmental administration, ^ i"®

spent in institutional administration, committees and
other miscellaneous institutional activities. This is
also th6 inost contentious coniponent*

The universities have incurred an increased burden
in setting up systems to account for the indirect costs.
^1980 repor? by the University of California 4/ f ti-
mated the cost of complying with 0MB to

i900 per award. Other universities which
I20 million in grants each year report staffs of three to
six people devoted to maintaining the effort reporting
system with upwards of 20 people involved in grant
administration .

The indirect cost rates that result from the applica-
tion o~f the Circular have been increasing in tine
1972-1982 time frame as shown in Table II-l on the
following pagT: nTl972 the average indirect rate as

measured as a percentage of direct costs was 25.9 per
cent. By 1982 the rate had grown to 42.8 percent V* ®

65 percent increase. Seventy-five percent of this
crease occurred in the first half of the period covered
(1972-1977) and although the rate of increase has de-
clined in the later half (1977-1982), it is still in-
creasing.

[Table II-l on the following page]

The University of California, Partnership Between
Universities and the Federal Government, January 14,
1980.

The figure used here differs from the 43.6 percent
rate shown in the previous table primarily because
of the different base to which it is applied. The
42 8 percent is derived by adding the total indirect
cost awards to each NIH grant and dividing by the
total cost. The 43.6 percent figure applies only to
the universities under HHS cognizance (approximately
90 percent) and is weighted on the basis of the
total research program of those universities.

Table II-l

HISTORY OF INDIRECT COST RATES PAID BY NIH

DIRECT COST

INDIRECT O

$ 641,865

$ 166,243

614,078

185,587

745,547

240,191

741,558

258,938

76**

1,058,466

386,164

961,162

359,140

1,112,973

416,093

1,331,722

512,279

1,463,768

586,306

1,568,995

655,143

1,610,679

689,855

TOTAL COST

$ 808,108
799,665
985,738
1,000,496
1,444,630
1,320,302
1,529,066
1,844,001
2,050,074
2,224,138
2,300,534

INDIRECT
COST RATE*

25.9

30.2

32.2

34.9
36.5
37.4

37.4

38.5
40.0

41.8

42.8

* Indirect Cost Rate measured on the basis of the ratio
of indirect costs to direct costs.

** Includes the quarter (7/76-9/76) involved in the transition
from the July 1 - June 30 fiscal year to the October 1 -
September 30 fiscal year.

There are basically three causes for this growth.

o the initiation of indirect cost accounting systems
by the universities, as they shifted away
the flat rates that were prevalent in the 19ous
(these systems provide for improved identification
of costs to be included in the indirect pool);

G inflation in certain components of

which is in excess of the inflation in payroll
(e.g., energy cost); and

o a more liberal interpretation of the guidelines
which have expanded the indirect cost base.

There has been increasing recognition of this

in Indirect costs, and

growth. (The growth in the indirect =®st rate is affecting
NIH and NSF more than the other agencies eth=®
cent of their total budget, approximately 75 percent for
each aqency# is composed of university research grants. )
NIH^proposed to reduce the reimbursement

by 10 percent in FY 1983, but Congress rejected the pro-
pLal.^ The House Committee on Appropriations requested a
?eport on the* indirect cost of biochemical and
research from HHS. The report recommended the establis
ment of a fixed allowance tailored to each institution
historical level .

The reason for the pressure on NIH to control the
indirect "sts can be se^n from Table 11-2, on the fc low-
ina oaae. which shows the average cost of NIH grants in

cSnslant dollars from FY 1970 to FY 1982. “

from the report to the House Appropriation Committee.

Average indirect costs have increased over the time frame

and average direct costs have decreased, particularly fihce

1972. More and more of the average grant amount is ei g

absorbed by indirect costs. As shown in the

the table, the ratio of indirect cost to direct cost has

increased from 28.4 percent in 1970 to 44.0 percent in

1982, a 55 percent increase in the rate.

New funding mechanisms and grant administratipn pro
cedures designed to create more academic .

flexibility, stability, responsibility and
are being evaluated and- implementeo bv NIH, NSF and onk.
Examples include the following:

o NSF has "redefined* its grant relationship with
universities to permit greater flexibility in
grant management. Differences between old and

(Table II-2 on following page]

Table II-2

TRENDS IN AVERAGE AMOUNT AWARDED FOR
NIH TRADITIONAL RESEARCH PROJECT GRANTS

FISCAL YEARS

1970-1982

IN TERMS OF 1970

DOLLARS

TOTAL

DIRECT

INDIRECT

COSTS -

COST -

INDIRECT COST

FISCAL

CONSTANT,

CONSTANT

AS A PERCENT OF

YEAR

DOLLARS

DIRECT COST

1970

^36,894

^28,740

$ 8,154

28.4%

1971

39,497

30,395

9,102

29.9

1972

41,817

31,657

10,160

32.1

1973

42,272

31,561

10,711

33.9

1974

44,186

32,781

11,405

34.8

1975

40,890

30,242

10,648

35.2

1976

40,666

29,576

11,090

37.5

1977

42,394

30,757

11,637

37.8

1978

42,889

30,937

11,952

38.6

1979

42,243

30,204

12,039

39.9

1980

41,778

29,619

12,159

41.0

1981

41,651

29,271

12,380

42.3

1982

41,986

29,144

12,842

44.0

Note:

Supplements to

prior-year awards

are excluded

in the compu-

tation of the average dollars. Constant dollars are based
on the biomedical R&D price deflators (FY 1970 = 100). The
transition quarter (TQ) which recurred between the end of
FY 1976 and the beginning of FY 1977 is excluded. Unobli-
gated balances are distributed between direct and indirect
costs.

new procedures are shown in Exhibit 11-14 on the
following page.

NIH is experimenting with Fixed Obligation Grants

• (FOGs) and has redefined administrative relation-
ships with grantees in a manner similar to NSF ,
as discussed above. Under FOGs, once the funding
agency has made a tentative decision to make a
particular award (e.g., the applicant has com-
pleted the current application and peer review
procedures), the agency and the prospective per-
former engage in preaward negotiations to
establish agreement on the following: (1) the

objectives of the project, (2) the nature and
frequency of the technical reports that the per-
former is to furnish the sponsor as evidence of
progress, and (3) the amount and period of the
award.

If these negotiations are successful, the sponsor
makes the award without any additional require-
ments for reporting. The sponsor would rely
exclusively upon the technical reports to assess
whether the performer's accomplishments under the
project constitute an acceptable return. Failure
by the performer to achieve the mutually agreed
upon objectives would weigh negatively in the
sponsor's considerations about future funding for
that performer's activities, but would not require
the withdrawal or return of funds already awarded
— hence the name "Fixed-Obligation Grant. "^/

o ONR is experimenting with a Total Business System
Review (TBSR) approach that analyzes an institu-
tion's financial resources and business manage-
ment policies. The TBSR emphasizes business
management systems review, audit and monitoring
rather than grant-by-grant transactions,.

[Exhibit 11-14 on the following page]

§/ HHS, NIH, Advisory Committee to the Director. Costs
for Biomedical Research, Proposed Changes in NIH
Authorization and Operations and a Proposal for the
Fixed Obligation Grant" Washington, October 1981.

Exhibit 11-14

DIFFERENCES RESULTING FROM NSF'S
REDEFINITION OF GRANT PROCEDURES

Does the University Have the Authority
to Make the Subject Changes Under: '

Type of Change

Old Procedures

New Procedures

Adjust dollars among
budget line items

Yes, except 125%
or $500 limit on
domestic travel

Yes, without
regard to per-
cent or dollars

Approve foreign
travel

Yes

Approve all
permanent equipment
purchases

Yes

Cover pre-award
costs

Yes, up to '90
days at grantee
risk

Allocate funds
among related
projects

Yes

Allow-no-cost

extensions

Yes, one time up
to six months

Contract for
project effort

Yes

Change principal
investigator

Change scope

Source; R.D. Newton, Redefining the NSF-Universitv Grant
Relationship, NSF, September 1982. 7~.

NIH and NSF are placing increasing emphasis on
multiyear funding of grants in order to achieve
greater research program stability. The average
NIH grant is for a period greater than three
years, and in FY 1982, 20 percent of the grants
were for five years. In FY 1982, for the first
time, NSF had more multiyear grants than one-year
grants.

Conclusions

The Government-university relationship is strained by
external and internal factors that inhibit the effective
performance -ot basic research. The current environment is
not optimal for attaining either party's mission and goals.

The increased tension associated with the indirect
cost question is counterproductive. The time devoted to
the question by senior university administrators and senior
Government officials is totally unwarranted and is detrimen-
tal to their leadership functions. A method should be found
to permit the indirect cost to be handled at lower levels

in the organization.

New funding mechanisms and recent changes in Govern-
ment policies are having a positive impact on the conduct
and management of university research. The programs listed
in the Findings section demonstrate that Federal agencies
are making initiatives toward improving the Government-
university relationship. Our interviews indicated that
these innovative approaches can result in a better grants
administration process. NSF's redefined grant program, in
particular, has been well received by the universities and
the Government.

Recommendations

R&D 5-1; The cognizant agencies should negotiate
indirect cost rates that include a fixed rate for the
administrative components and relieve the universities of
the main portion of the burden associated with effort
reporting .

The administrative components of the indirect cost
rate (departmental administration, general and admin-
istration, and sponsored project administration) are the
most difficult components to establish on the basis of
documented, objective evidence and further attempts to
reach a compromise on acceptable forms of documentation
will only create more friction and frustration. Instead
fixed rates should be negotiated and the ongoing require-
ments for documentation of actual rates should be
eliminated.

Such an approach should benefit the universities in
that it reduces the burden on them and gives them a defi-
nite target toward which to manage. To the extent that
their actual administrative expenses are less than the
negotiated amount, they would benefit. If the actual
expenses cannot be controlled within the target, they will
have to make up the differences.

The Federal agencies would also benefit because this
would help to eliminate the most contentious element in the
management of the grant programs. Also to the extent that
increases in the administrative components are the cause in
the growth of indirect rates, it could be better controlled
in this manner..

In operation it would be desirable to establish one
rate nationwide. Such a rate would be applied to all uni-
versities and would greatly simplify grant administration
and record-keeping. This approach may be difficult to
implement initially with such a diverse group. As an alter'
native, it should be possible to negotiate a fixed rate
with each university which should be considerably below the
current rate since the burdens associated with the documen-
tation of the rate would be eliminated. 2/

R&D 5-2; 0MB should encourage agencies to implement
new funding mechanisms and grant administration procedures.

The issue team recommends that NSF, NIH, DOD, and
other Federal agencies continue examining alternative fund-
ing mechanisms and grant administration procedures. The
most promising programs at an agency should be examined by
other agencies for applicability to their own research
grants and contracts. 0MB should provide this coordina-
tion. Greater agency coordination and cooperation is need-
ed to share improvements in Federal support mechanisms. It
is recommended that;

o All Federal agencies supporting university re-
search experiment with the NSF redefined grant
concept during the next fiscal year. The NSF
redefined grant program permits limited grouping
of scientifically related projects, allows the
university to make certain specified types of
budgetary changes on its own, and streamlines
grant administration. After each agency's evai-

2/ We recognize that all of the burden associated with

indirect cost would not be eliminated. However, since
the accounting for departmental administration is
supposed to be 'the most burdensome, the burden would
be considerably reduced.

uation shows adequate university accountability
practices, a Government-wide program can be
implemented. This program will result in cost-
effective university research management and
increased researcher productivity.

o NSF and NIH evaluate the ONR short-form research
contract approach and adapt it to selected small
(e.g., less than $50,000) programs within the
next year. The short-form contract streamlines
and accelerates research contract award, thereby
reducing administrative costs to both the Govern-
ment and universities. NIH and NSF should eval-
uate whether ONR's short form can be used with
their peer review systems or if an internal review
process is mote cost-effective.

o All agencies funding university research develop
quantifiable goals within the next fiscal year
for increased use of multiyear grants. These
goals should be explicitly stated in annual bud-
get materials. This activity will improve the
stability of ongoing research efforts and encour-
age the longer term research investigations of
more complex problems which may not be amenable
to near-term solutions.

HHS conduct an evaluation of the TBSR being imple-
mented by ONR. TBSR provides oversight consistent
with the trend of transferring more responsibility
for research grant administration to the institu-
tions. HHS should determine if TBSR could encour-
age greater research effectiveness without loss
of accountability in health research.

R&D 5-3: 0MB should develop a simplified, optional

method for determining indirect rates for institutions

receiving less than $10 million annually

0MB should work with HHS and ONR to develop and test a
simplified method of institutional reporting for universi-
ties receiving between $3 million and $10 million in Federal
research support each year. Currently, 0MB Circular A-21
provides a simplified method for determining indirect rates
for universities receiving less than $3 million in Federally
sponsored research grants. No such option is available to
the universities receiving between $3 million and $10 mil-
lion. Savings in administrative time could be achieved for
both universities and the Government without serious degra-
dation of the information needed for program management.
Although there are about 700 universities (88 percent) with
less than $10 million a year in research funds, they receive
only 20 percent of this total.

Savings and Impact Analysis

The Government has invested more than $100 billion in
universities during the past 35 years to build the world's
finest basic research enterprise. The technological prom-
inence that the United States gained as a result of this
investment must be safeguarded. Recent years have been
characterized by minimal real growth or actual decline in
support of university research. The Task Force believes
that attention should be focused on how to optimize the
conduct of research through improvements in environment,
systeijis and research management rather than by reducing
funding for R&D.

A savings and impact analysis for each recommendation
follows:

R&D 5-1: It is anticipated that the negotiation of the

administrative components would result in lower costs to
the Government for the existing base of university research
The reduction in the university burden associated with the
documentation of departmental administration and the
elimination of that controversial part of the problem
should result in a lower average rate.

There is no basis to predict the actual reduction that
would occur in the indirect rate when the recommendations
are implemented. The rates to be set are to be negotiated
between the universities and the Government and the results
of these negotiations cannot be anticipated. In order to
compute savings, it will be assumed that the administrative
components would be reduced an average of 3 percent. The 3
percent assumption is based on a reduced burden associated
with effort reporting, a reduction in other accounting

requirements, and the improvements in the relationship that
should develop.

The university research budget is currently $4.7 bil-
lion. Using an average indirect rate of 43.6 percent, the
direct labor component of the $4.7 billion is $3,273 bil-
lion ($4.7 billion divided by 1.436). Anticipated savings
at this level would be $98.2 million ($3,273 billion x
0.03) or 2.1 percent of the $4.7 billion research grant
award. It should be noted that the actual savings to be
realized would be set by the university - Government
negotiations. Also these savings may or may not result in
reductions in the R&D budget since these "administrative
savings" could be deployed to increase direct research
funds allocated to university research.

100

CO Tf fhe new funding mechanism described in R&D
5-2 Unreduced and the J^^f sted changes in repo^^
requirements agencies could^sa^ estimates the

the first year. ^J,^PeLral agencies and from seven

Task Force obtained from that used the NSF redefined

public and private institutions’ estimated

grant on an e^cperimental basis. ppjoximately 1.5 percent
savings ranged ^ "®^H|^receLed% the university. Most
of the total 'Federal funds of 0.5 to 1.0 per-

frequent estimates were would be passed back

cent. These savings to the universi y amounts. The

to theGovernment through reduce savings;

following estimates are usea

O 1983 annual Federal support of universities =

^4.7 billion.

O Less $ 0.9 billion already under the NSF model

(at NSF) = $3.8 billion.

0 $3.8 billion X 0.5% • $19.0 (low estimate)

o' $3.8 billion X 1.0% = $38.0 million (high

estimate ) .

we have conservatively estimated th.^

redS5tiirof Td^mifis^t^atil f -rhead and do not overlap
With the savings from R&D 5-1.

another i^Postant benefit is greater^ejf^

rd^iri?trato?J “‘"“Lr?bunfv:rSSry!|lv rnment

eluded in the recommendation, and the university
relationship is bound to improve.

R^Di^ .A ®^^f/i^:Lrs?rarivl foltraritr^n^tren

Federal and university administrative
Federal oversight.

NO savings are quantified for this recommendation.

101

Summary: The chart below summarizes the net savings for

this issue, assuming 10 percent annual inflation.

Summary of Savincs
(| millions)

Recommedations

Year 1

Year 2

Year 3

Total

R&D 5-1

^ 98.2

$108.0

$118. 8

$325.0

R&D 5-2

19.0

20.9

23.0

62.9

R&D 5-3

Total

(NQ = Not Quantified)

$141.8

$187.9

Implementation

All recommendati
agency authority.

ons can be

implemented

under existing

102

II, ISSUE AND RECOMMENDATION SUMMARIES (CONT D)

RESEARCH AND DEVELOPMENT (CONT’D)

R&D 6t RESEARCH PROGRAM REPORTING

Issue and Savings

can unnecessary research project redundancy be reduced
bv use of an automated central data file as part of t
rLearch and development (R&D) project initiation and on-
going management?

The Task Force conservatively estimates that
tation of a centralized data base containing records of all
^oh'?lassified. Federally funded, completed and
oroiects will reduce unnecessary- program redundancy
ISd^app!ied research by a minimum of 0.5 percent in the
second year and by 1.0 percent by the third year. This
will result in net savings of $71 million in the second
yll) anl $158.5 mllion in the third year.
inq for the $4.0 million in start-up costs, the three ye

total net savings would be $225.4 million.

Background

The need for a central depository to control and dis-
seminate information on completed and ongoing Federally
funded R&D has been considered for nearly four ^

is estimated that in FY 1983 the Federal

spend $43.0 billion on R&D projects conducted by the Fed
eral Government, industrial firms, universities and col
llges, and other nonprofit institutions (excluding $1.3
billion expenditures on R&D facilities) .

In add
one agency
Table II- 3,
agency and
of research
For example
tive agency
research at

it ion, numerous areas of R&D involve more than
or multiple subdivisions of a single agency.

on the following page, shows levels of ^^oss
cross-subdivision activity in various categories
in the physical and environmental sciences.

there are 22 independent agencies and Execu-
subdivisions involved in chemistry-related
a funding level of $532.8 million for FY 1983.

(Table II-3 on following page]

103

Table II-3

rtOERAL OBLIGATIONS FOR RESEARCH IN PKTSICAL AND ENVIRONMENTAL SCIENCES, BY AGENCY
AND detailed field of SCIENCE: FISCAL TEAR I9B3 (ESTIMATED)

(THOUSANDS OF DOLLARS)

agency AMO SUBDIVISION

TOTAL

PHYS.

ASTRON-

OMY

ML ISl

CHEM-

ISTRY

:nc»

PHYSICS

PHYSICAL

SCIENCES

NEC

total

fnviROn'

ATHQS-

PHERIC

IFKCFS

ocean-

ography

environ-

mental

sciences

TOTAL. ALL AGENCIES

R«A44,T94

384,078

532.818

1.742.371

145.027

1,047.700

J90,3AB

344.813

252.752

84,837

OC^AKTMENTS

DEPARTMENT OP ACRICUITURC, TOTAL

AB,023

44.250

3.773

•

13,178

5,112

8.044

agricultural research service

53.404

50.770

2.434

3,007

2.142

815

•

COOPERATIVE state RESEARCH SERVICE .

10,021

—

10.021

•

1.255

1,255

FOREST SERVICE

4,543

3.454

1.134

•

8,514

1,445

7.251

DEPARTMENT OP COW«EPCE. TOTAL

1,117.3B4

448

115.444

443.744

4.473

133.478

BO, 743

38.424

29,315

5.072

ENERGY RESEARCH AMO TECHNOLOGY

AOMIN 1/

1,071, u:

340

102.478

441.421

4,973

72,045

22.483

34.011

8.024

5,072

NATIONAL lUREAU OP STiNOAROS

NAT'L oceanic & ATMOSPHERIC AOMIN ..

34.447

558

12.141

24.548

•

377

•

377

—

4.277

880

5.347

•

41.004

37,774

2.041

21.184

OERARTMENT OF DEFENSE, TOTAL

B07.445

14.444

128.030

513.477

145.242

230.241

41.744

41.422

77.543

1B,B07

department op the ARMT

134,310

58.451

52.124

28.733

23.524

13,134

8,734

437

I,Z2A

1X,9T3

department op the NAVY

251.237

11.024

35,343

184.750

18.055

40.810

11.470

4.151

41.014

DEPARTMENT OP THE AIR PORCE

47.145

5.417

33.414

55.140

2.872

51.405

43.074

1.324

•

DEFENSE AGENCIES

314.303

300

214.441

45.542

44,547

23.884

18.708

14.540

5.410

DEPT OP HLTH i HUMAN SERVICES, TOTAL .

B5.415

•

74.821

8,744

•

ALCOHOL. DRUG ABUSE A MENTAL HLTH

AOHIN

2.44B

2.448

•

national INSTITUTES OF HEALTH

B2.447

7a, 173

8.744

•

DEPARTMENT OP THE INTERIOR, TOTAL

13.473

10,070

1,7A0

1.843

147,242

4.471

124.083

12.178

2,530

BUREAU OP LAND MANAGEMENT

•

250

BUREAU OF MINES

4.400

•

4.800

—

1.800

4.400

■ —

3.400

•

•1,300

BUREAU OF RECLAMATION

—

4,473

4.323

•

150

•

geological survey

4.440

5.200

1.740

134,242

•

122.214

12.028

national park service

—

3.022

2,148

•05

175

OFFICE OF THE SECRETARY

•

—

175

•

OFF OF surface MINING RECLAMATION

200

4 IMFORCEMEMT

—

•

OERARTMENT OF JUSTICE, TOTAL

200

. •

200

•

DRUG ENFORCEMENT ADMINISTRATION ....

200

•

OERARTMENT OF STATE. TOTAL

140

departmental funds

■

140

•

140

DEPARTMENT OF TNANSRORTATIOH, TOTAL ..

•

135

•

FEDERAL HIC»«UY administration

•

135

—

DEPARTMENT OP THE TREASURY, TOTAL

1.781

342

244

1.140

•

BUREAU OP ENCRAVIMC AND PRIMTlHG •••

1.781

•

342

244

1.140

•

OTHER AGENCIES

ENVIRONMENTAL PROTECTION AGENCY

34.BB4

•

34.884

•

3,521

873

2,273

375

PEDERAL EMERGENCY MANAGEMENT AGENCY ..

4.404

—

4.514

•

181

•

140

INTERNAT'L dev cooperation AGENa ....

•

140

agency POR IHTERHAT’L OEYELOPMENT ..

i ^

1 140

140

NATIONAL AERONAUTICS A SPACE AIMIN

413,407

241.480

5.400

110.402

5,125

274.172

124,212

24.028

54,448

NATIONAL SCIENCE FQUNOATtON

284.574

47,551

40.888

125. 451

484

284.422

100.444

1.330

SMITHSONIAN institution

8.453

—

•

3,545

104

TENNESSEE valley AUTHORITY

3.700

j —

3.700

—

•

—

•

us arms control b oisarmameht agency .

■

145

1/ THE I9B3 BUDGET RROROSED THAT THE OERARTMENT OF ENERGY BE RERLACEO BY THE ENERCY RESEAROt AMO TEQ«OLOCr ADMINISTRATION
HITHIN THE OERARTMENT OF COlWERCE.

SOURCE: NATIONAL SCIENCE FOUOATIOB

104

Given the site of the ^®^“tetrof‘’ln?«agato?s!^ena

?^rat^teftrwSl=r.“uufpirannci«

Snf:nr«s^l“progrfunJ^^^^

iir S oF£m

recent years. __

jimithsonian Science -■ynneiige^es tab-

evolvea from the , .-tea aata concerning

^irea^:rT;ro| sji:3-

S"g1^^rsnerirt«ra^o°n -single page. Notice of research
Project# which included.

^"a^errnaiareslerorirt^cfpli ana associate

investigators f

location of worK,

title, e technical detail, and

a 200-word summary of t

the level of effort.

o cne xcvt^e.. -

The information ^^ttonic^datt'^prScessing files.

search investigators associat administrators of

institutions and research ,

service to the approval of the transfer.

However,, congress withheiQ apH

' e. v-i/^nQ where redundancy in

Clearly, there ate "“"L^a^sitable. Frequently, a
R&D is both required and desi studies so that

s^nLr will want “.f a significant prob-

„cre than one ‘|4! sponsors will want wort

lem. In other instances, ^ , or sensitivity

repeated however, concerns project redun-

studies. ujhirh is desired and necessary,

dancy beyond that which is

• r, <;rience Information Exchange Annual
Smithsonian Science m

Report, 1981.

105

During FY 1982 budget proceedings, it was decided not to
transfer the SSIE service to DOC; rather, it was recom-
mended that funding for SSIE be cut back for each subse-
quent fiscal year , and that the organization become fully
self-sustaining by FY 1985. The SSIE Advisory Council
determined that the service could not become a viable
self-sustaining entity without a sufficient lead-time at
full Federal funding in order to develop a solid revenue
base through marketing and product improve- ment programs.
Therefore, SSIE opted to close operations in FY 1982. By
the time SSIE phased out, its data base contained 300,000
citations, including non-Federal and foreign R&D, and was
being updated at a rate of 100,000 new and ongoing R&D
projects per year. Services provided or contemplated by
SSIE prior to its demise included the following;

o administrative indexes consisting of alphabetical
entries of all R&D citations by performing and
supporting organization, investigators' names,

and geographical location of performing organiza-
tions;

o hierarchical subject indexes of ongoing research;

o research information packages geared to specific

types of research or clientele; and

o data base access both through on-line commercial
vendors and directly through SSIE.

National Technical Information Service (NTIS) — NTIS
is a self-sustaining organization, under the auspices of
DOC, with sales revenues of over $19 million in FY 1982.

The organization was established in 1970, at which time the
Clearinghouse for Federal Scientific and Technical Informa-
tion was abolished and its functions transferred to NTIS.

The NTIS Bibliographic Data Base now serves as the
central source for the collection and dissemination of non-
classified Government-sponsored R&D and engineering reports
submitted on a voluntary basis. The dat3 base currently
contains about 800,000 citations dating back to 1964 and is
updated biweekly at a rate of about 65,000 new citations per
. Users access the NTIS data base through commercial
on-line retrieval services or directly from NTIS.

The NTIS data base currently does not contain informa-
tion on new and in-progress Federal R&D projects. It had
been proposed that by FY 1981 NTIS would begin to absorb
fully the functions and capabilities of the SSIE data base.

A feasibility study had estimated the cost of the merger.

106

including the expansion of the NTIS data ^ase to accommo-
date SSIE's project files and conversion of the tiles, to
be about $2.0 million. These systems were merged in FY
198-3-

In 1983, NTIS developed plans with the Office of
Science and Technology Policy (OSTP) to provide NTIS users
with a central source of information on current Federal R
projects, under the arrangement, OSTP will coordinate the
collection of current R&D project information. The infor-
mation will then be compiled by NTIS and offered as an
on-line commercial information service to the agencies
affiliated with NTIS.

Methodology

The Task Force interviewed key staff personnel from
0MB, NTIS, Department of Defense (DOD) , National Aeronau-
tics and Space Administration, National Institutes of
Health (NIH) , U.S. Department of Agriculture, General
Accounting Office (GAO), and other Federal agencies, as
well as private 'sector staff with experience m both
research control and information systems. In addition,
literature sources related to Government R&D were reviewed,

Findings

Interviews and studies of several large Federal
research divisions showed a significant number of resear_ch
projects that appear to be duplicative of other propec^.
The Task Force clid not study tne potential redunaancy ot
individual projects. However, these cases were identified
during interviews and site visits. For example, the di
ferent military Services have undertaken to develop pro-
tective clothing and gear independently of one another.

Each conducts separate studies of materials acceptability,
reaction, etc. In another example, several agencies are
conducting parallel research on genetic engineer ing_ without
cross-consultation. In a third example, at least three
agencies are studying myotoxins without joint discussions
of needs, funding and future plans. Finally, a 1982 GA
report discussed the funding of 11 Federal agencies to con-
duct research in the National Marine Pollution Program and
the need for better coordination among the several agencies
involved in that area of research (see Table II-4 on the
following page) .

[Table II-4 on the following page]

107

National Marine Pollution Program Funding by Agency and

Categories in FY 1981 :

($ thousands)

108

in an interview with a vice president of a

Private sector research firm, he reported that in
Mfi^\aboratories rougruv lu percent of the projects unqe^
any time couid be unnecessat xlv redunaanc in^he

absence of positive management action. In ~

researchers have a concurrent need to achieve the same

objective. Several will start similar that^f iJm

desired information. At least once each year in that firm,

the director actively searches out project
institutes a review to uncover unwarranted duplication,
ihl fl™ then acts to consolidate its research efforts and
eliminate redundancy.

Numerous interviews at key R&D agencies within the
FederiT-^ernment revealed that research

earned that there is no central ® j—

which knowledge gained during previously conducted , F_e_d
erallv f unded^programs is available. As a result, new
projects are often started in various agencies without the
benefit of experience gained in similar studies conducted
elsewhere.

It is currently not possible for an agency to recover

information formally and comprehensively from programs of

other agencies until publications are made. Some agencies,
suSras DOD, do not make RSD project information publicly
available for reasons of national security. In others,
publication usually takes a year or more.

Some .agencies, such as DOD’s Defense Technical Infor-
mation center and the Environmental ^5°^®*^'^"°" t^nwn Ln
(EPA) Office of Toxic Integration, maintain their own R&o
project information data bases. However, these are only
agency-specific systems without interface to other agency
and NTIS data bases.

rnrrpntlv. there is no central data base capable of
orovi^ITTT'readv access to 9^^

Ind completed kderaiiv fundee R&u. The NTib data base
currently does not contain records of ongoing Federally
funSeS rId and only limited records of such P-^03®=ts are
expected to be available through commercial vendors in the
foreseeable future. In addition, the NTIS data ^ase of
completed R&D projects is not comprehensive. A GAO su y
of Federal agencies revealed that only 64 percent of the
respondent agencies submitted completed R&D project reports

to the NTIS data base. 2/

3/ GAO. Federal R&D Laboratories -- Director’s Persp^-
“ tives oh Management, November 1979.

109

. ^ of NTIS user statistics shows that the data

base IS not extensively used by Federal agencies. Only 10
NTIS customers are Federal agencies, whereas 46
percent are from business and industry; 18 percent are
individuals; 13 percent, universities; 11 percent, state
and local governments; and 2 percent, other.

Conclus ions

The Task Force has reached two conclusions. First, a
comprehensive R&D information, system needs to be imple-
Federal Government; secondly; new projects
initiated only after the sponsor states that a
search has been made and that the work is not redundant.

cnih Federal R&D divisions

Office of TOXIC Integration. The information
system should be designed such that it may be accessed by
any member of the R&D community and is readily accessible
by all R&D professionals in the Federal Government.

Research personnel should be able to access easily the
data base to retrieve all previous studies on a topic of
interest and also to identify significant discoveries in
research. As an addendum, the data base should
a ow or cross-checking in order to eliminate redundancies.

Both the .mechanism and the expertise exist within the
Federal sector to establish such a system. Not only do
individual agencies such as NIH, DOD and EPA have proto-
ypes that have been tested, but the format of the NTIS ■

provides access key words, access terms and a method
ror report dissemination.

Recommendations

. . — ^*1? The NTIS data base should be expanded within

limits permitted by national security needs. This expan-
Sion should include a comprehensive listing with abstracts
Of all current Government R&D programs, both in-house and •
contracted, as well as comprehensive information for com-
pleted R&D programs.

R&D 6-2; Contribution to and use of the data base by
Federal agencies should be made mandatory. Further , it ^
should be the responsibility of every sponsor to provide
periodic entries into the data base as interim and final
reports become available.

_ R&D 6-3; Every contract award and grant the Federal

Government makes to fund extramural research should

_nc u e a reguirement that contractors and grantees supply

110

for the data base in the appropriate format-
Contractors and grantees should be considered delinquent ,
and^contracts and grants should be considered incomplete,
unless such documents are submitted.

Savings and Impact Analysis

Annual savings from instituting implementing a

comprehensive R&D data base, as recommended above, will be
achieved by a reduction in the funding of undesired or
unnecessarily redundant Federal R&D projects. Task Force
interviews with key staff and review °

divisions in both the Federal Government and the private
sector revealed that such project redundancy may range fr
5 to 10 percent of program funding for basic and applie
research. However, in calculating the savings to
realized Government-wide by implementation of its reco
mendations, the Task Force considered these factors:

There is redundancy in the Federal R&D budget
that is, indeed, warranted.

, significant portion of the R&D budget consists
>f programs of a classified nature would

lot be included in the proposed central data base
[a reliable estimate of the dollar amount, how-
ever f is not available) .

There is ongoing research that, even
unnecessarily redundant, could not be
curtailed .

if . found
immediately

The process
pinpointing
require time

of uncovering areas of redundancy and
specific projects as unwarranted will
and careful consideration.

consequently, the Task Force's calculation
tial savings in this issue conservatively assumes that the
JevelTf "Warranted redundant R&D that can be eliminated
in the second year of implementation represents 0.5 percent
of the total estimated Federal basic and applied resea
fnr PY 1982 ($13.3 billion). This percentage is assumed to
increLi to Ope relit by\he thirl year. The Task Force

111

analysis assumes no savings will be realized and that a
start-up cost will be incurred in the first year of imple-
mentation of its recommendations. These costs would pri-
marily involve the development of a standardized reporting
format and method for all agencies and contractors involved
in Federally funded R&D at an estimated first-year cost of
$4.0 million. Subsequent annual operating costs are esti-
mated to be $2.0 million. Savings are calculated as fol-
lows (figures are inflated 10 percent per year) :

Savings Calculations

{$ millions)

Savings from Year 1
project reductions

Year 1

Year 2

Year 3

Total

(0 X $13.3 billion)

Savings from Year 2
project reductions

■■

(.005 X $13.3 billion)

Savings form Year 3
project reductions
(.01 X $13.3 billion)

$ 73.2

$160.9

$ 73.2
$160.9

Cumulative gross savings
Implementation and

-0-

S 73.2

$160.9

$234.1

operating costs

(4.0)

$ (2.2)

$ (2.4)

$ (8.6)

Cumulative net savings

(4.0)

3 71.0

$158.5

$225. 5

Implementation

Implementation of the Task Force’s recommendations can
be done by the agencies involved.

112

II, ISSUE AND RECOMMENDATIONS SUMMARIES — (CONT\^

RESEARCH AND DEVELOPMENT (CONT*D)

R&D 7; NASA COST REPORTING

Issue and Savings

Can project management in the National Aeronautics and

space Administration (NASA) be strengthened by expanding

the scope and coverage of the systems used to manage NASA
resources to include Civil Service personnel.

The Task Force believes that the recommendation pre-
sentJ tnThis tsSue -U1 permit NASA

Jn management of the agency. ,No specific savings ate
attributed to this management improvement.

Background

NASA's budget is divided into three major appropria
tion accounts:

o Research and Development (R&^ — the

study, development and acquisition of space
systems to carry out the NASA mission. Of all
the funds appropriated in this account, 93 pe
cent are used to contract out the study and
development activities.

o Construction of Facilities — covers Jhe

planning and construction activities to support
NASA operations.

o Research and Program Management (R&PMJ_

all internal NASA activities including the P^an
ning of new space Projects; the management of the
space projects currently being developed; actual
design and development activities on
soace projects; support and management
tional^space missions; and the work
support and management of the research and deve
opment contracts.

113

Since its inception# NASA has reported its project
incremental costs to the agency for conducting a

costs incurred specifically to support a
aSd costs^including Civil Service employees

fvfcJfUH II' acquisition costs within

considered incremental to any
Tnii included in project costs.

aSy pfojictf distorts the true cost picture of

Methodology

developing this issue# the Task Force conducted
NASA# the Office of Management and Budget
(0MB) and the General Accounting Office (GAO) to further

backaroSUri nf attempt to understand fully the
u issue. These interviews were supple-

mented by a review of several GAO reports.

Findings

^h» has a well-defined automated system for managing

the space projects it undertakes. The primary focus of
management is on the contractors responsible for developing
tne various NASA projects. The extent of NASA internal ^
manpower resources employed on a project and how they are

pilcllt. specifically included in the management

an project planning# NASA does require

an estimate of the internal manpower resources required to

f"?3ect. However# internal project management
^ project does not report on the actual
the people# and subsequent planning does not
cover these resources except in emergency situations.

114

These internal resources can be significant on a total
oroiect bLis. The following table, derived from two separate
GAO^ reports on the subject 1/, shows that the unreported pro-
ject costs attributable to Civil Service personnel ranged fro
12 oercent to 34 percent of total project cost. This means
tL? NAlA reports on the cost of these projects significantly
understate real costs.

Project

GAO Estimate of Costs of Civil
Service Personnel as a Percent
of Project Costs *

Atmosphere Explorers - C, D, and E
Orbiting Solar Observatory — I
Nimbus G
Space Telescope

34%

20%

13%

20%

★

Project costs are used as the base since that is the basic
number reported by NASA.

These data aoply to total projects. The percentages could
be much higher as' a percent of project cost on individual com
ponents or subsystems. In certain situations the entire su
system, or a major part, may be developed in-house.

According to the GAO studies, the problem goes beyond the
basic development cost. In the case of the Space Telescope,

GAO found that NASA was significantly understating the full
life cycle costs as well.

Development Cost Operation Cost Life Cycle Cost
i m i T 1 1 nns )

NASA estimate $ 530

GAO estimate $ 716

(included Civil
Service costs
and inflation)

$ 600
$1,473

$1,130

$2,189

GAO, Need For Impr
On Major unmanned
25, 197 sT

oved Reporting and Cost Estimating
Satellite ProTects, PSAD-75-90, July

GAO, NASA Should Provide
Informition on the Space
January 37 I960 .

the Congress Complete Costs
Telescope Program, PSAD-80-15

115

• Another GAO study 2/ criticized NASA for not includ-
ing relatively fixed” costs for "Civil Service support:
general support costs for launch vehicles, tracking and
data acgu is i t ions ; or costs incurred by other agencies
supporting the projects." Specific examples cited by GAO

Space Shuttle
HEAO A-C

Mariner Jupiter/Saturn 1977
Pioneer Venus

Unreported Costs

$ 2.3 billion
$77.8 million
$47.9 million
$19.6 million

These examples clearly indicate significant costs
associated with space projects that are not being covered
in the nianagernent of the individuel projects*

Another estimate of the magnitude of this problem can
be developed from the FY 1983 budget. The budget for the
account is $1,229 billion. If the $176 million
budgeted for other services is removed, $1.05 billion would
represent the total internal NASA budget for 22,382 full-
time equivalent (FTE) employees. The NASA Comptroller's
Office estimates that 30 to 50 percent of NASA personnel
are currently employed on the various projects. 3/ Accord-
ingly, $315 to $525 million of project work is not actively
being covered in the project management system.

GAO has repeatedly criticized NASA for not including
these costs in the reports submitted to Congress. NASA
response to GAO always addresses the following points:

The NASA Civil Service staff is a vital national
resource necessary to provide a capability but is
insensitive to the changes in project require-
ments. As such, if a project is added or deleted
the Civil Service costs will not change.

2/ GAO, Improved Reporting Needed on National Aeronautics
7*;° Administration Projects, PSAD 77-54. .Tannery

i977f p • 8 •

2/ The remainder of the Civil Service personnel are
involved in overall agency management, advanced
development and preliminary project planning such as
the Space Station.

116

There is e need to maintain flexibility in the
utilization of the Civil Service staff. When
individual projects enter difficult periods, NASA
wants the ability to assign staff to the contrac-
tor's facility to assist in problem resolutions
or to bring a certain aspect of the project in-
house for better control.

The economic costs of a project to the NASA bud-
get should not include the Civil Service costs
since these costs would not be avoided if a proj-
ect were canceled.

Conclusion

Based on our experience in the private sector, the Task
Force believes that NASA must expand its project management
systems to include the internal resources that are availaole
to it. The 22/000 person-years of effort per year should be
controlled to the same degree as the R&D monies in pursuit
of NASA's mission. This does not necessarily imply that the
total resource level would cnange as a result of individual
project decisions. It does mean that decisions should be
made on the basis of current and planned project work load.

Recommendation

R&D 7; NASA should expand its project management
systems to cover all resources availaole to it. The $1.2
Pillion made availaole to NASA in the research and program
management account is just as important from a management
perspective as the $5.3 billion in the R&D account.

Savings and Impact Analysis

No specific savings are estimated for this issue since
it is primarily a management improvement issue. Certainly,
economies are possible if NASA would plan, monitor and con-
trol its internal resources to the same degree it does its
money for contractual services.

Implementation

The recommendation contained in this issue can be
implemented by the NASA Administration. It is not a new
recommendation, having been made by both 0MB and GAO for
over ten years. From the private sector perspective, we do
not accept NASA's rationale for not implementing it, since
implementation can only lead to improved management.

117

II.

ISSUE AND RECOMMENDATION SUMMARIES (CONT’D)

RESEARCH AND DEVELOPMENT (CONT*D)

R&D 8: COMPENDIUM OF SELECTED R&D ISSUES

Issue and Savings

What are the research and development (R&D) oppor-
tunities for cost savings or revenue generations identified
by other President's Private Sector Survey (PPSS) Task
Forces not discussed in detail in this Report?

Additional three-year’ savings/revenue generation of
$32,984.2 million are projected from implementation of the
97 PPSS recommendations . These are primarily the result of
improvements in strategic planning and R&D management and
the Dudget process.

Background

This compendium consists of R&d issues not reported
elsewnere in this Report. We nave decided to include these
savings as a compendium issue to portray the total benefit
of R&D improvements identified by PPSS Task Forces.
Including these savings as a compendium issue allows their
inclusion witnout repetitious descriptions . of similar kinds
of improvements in a number of agencies.

The savings reported in the Issue and- Recommendation
Summaries are duplicated in other reports, but will be
netted out in the President's report to avoid douole count-
ing. These recommended savings and revenue opportunities
are presented nere to demonstrate the importance of the
Federal Government's need to focus on these opportunities.

Findings

In addition to the seven specific issues discussed
previously, numerous other R&D issues were identified by
PPSS task forces.

A review of tnese issues confirms that the R&D im-
provements most needed in Government are in the key areas
of strategic planning and R&D management and budget cycle.

118

Conclusion

There are many agencies and applications that would
hene'fit greatly from R&D management improvements. The num-
ber of these issues and savings/revenues represented sup-
port the Task Force's position that greater attention and
improvement is needed Government— wide for R&D management.

Recommendation

R&D 8; The President. Congress, and specific agencies
should take steps recommended by other PPSS Task Forces to
improve R&D management.

Savings and Impact Analysis

Sa V ings/r evenues included in this compendium issue are
listed in Exhibit 11-15 on tne following page.

Implementation

Implementation requirements can be found in the issues
in each Task Force report.

[Exhibit 11-15 on tne following page]

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H. SUMMARY LIST OF
RECOMMENDATIONS AND SAVINGS

UI. SUMMARY LIST OF RECOMMENDATIONS AND SAVINGS

This section summarizes the annual and cumulative
savings for each issue in the report.

The authority required to implement the individual
recommendations is also shown according to the following
legend:

A — recommendations can be implemented under the
existing authority of the agency.

P — recommendations can be implemented under the
existing authority of the President.

C -- recommendations can be implemented by action
of the Congress.

127

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129

3SC. COST CONTROL OPPORTUNITIES

FOR FURTHER STUDY

IV. COST CONTROL OPPORTUNITIES FOR FURTHER STUDx

A. UNIFORM PATENT AND TECHNICAL DATA POLICY

Issue

Can a revised patent and technical data policy improve
the transfer of Government-funded innovation to industry and
enhance cooperative research projects between Government and
tne private sector?

Background

Patents — The lack of a uniform patent policy resulted
in the issuance of tne Presidential Memorandum and statement
of Government Patent Policy in 1963. This memorandum was
revised in 1971, providing further guidance to agencies for
assigning title to inventions resulting from Federally
funded researcn. Tnese attempts toward .uniformity have
oeen relatively unsuccessful and policies have been de-
veloped over the years on an agency-by-agency basis. There-
are wide variances in the way agencies have interpreted the
Presidential policy, vesting title to inventions in the
Government in one instance and in the contractor in another.
There has also been piecemeal legislation that further com-
plicates implementation of this policy. In fact, there are
20 different patent arrangements used by the agencies.

The 96th Congress enacted P.L. 96-517, providing that
in most cases a nonprofit organization or small business
firm may elect to retain title to inventions made during
Federally sponsored research and development (R&D). Pend-
ing bills would extend P.L. 96-517 to all Government
contractors (Scnmitt Bill, S. 1657 and Ertel Bill, H.R.
4564).

Technical data — The Government needs many kinds of
technical data, particularly in the Department of Defense
(DOD), from the simplest gadget to the most sophisticated
equipment. To maintain competition among suppliers and to
furtner economy in Government procurement, these data are
available, with certain exceptions, in the form of contract
specifications.

The Government has unlimited rights to all data result-
ing from Government-sponsored research and development.

130

whether it he totally financed or a joint venture with a
contractor. If data are developed at the contractor's
expense, then the Government is responsible for keeping it
secret; its disclosure to competitors could jeopardize the
competitive advantage it was developed to provide. The
Government has limited rights to this data which should not
be transferred to a third party under the Freedom of Infor-
mation Act (FOIA). Any public disclosure of technical data
can cause serious economic hardship to the originating
company .

License — The Federal Government has a portfolio of
28,000 to 30,000 patents. Less than 10 percent of them have
been licensed to private producers. The Government also
follows a practice of filing patent applications for inven-
tions witn little or no commercial value. Under present
legislation and Defense Acquisition Regulation, the con-
tractor can request a waiver of title to inventions, thereby
vesting title to tne invention in the contractor rather than
the Government (when the invention results from Government-
sponsored R&D).

Metnodology

The following approach was taken to develop and vali-
date tne conclusions reacned:

o Present agency practices were determined through
literature review and interviews with agency
patent and tecnnical data personnel.

o Present and pending legislation was reviewed.

o Objectives were discussed with drafters of the new
Federal acquisition regulations.

o Industries' concerns were reviewed and evaluated.

o The above information was analyzed.

Findings

The lack of a uniform patent and technical data policy
results in tne following:

o There are 20 different patent arrangements used by
the agencies.

o Major contractors do not have access to Govern-
ment-sponsored innovation.

131

o Tnere is a reluctance in the private sector to
make use of Government-sponsored innovation in
the absence of exclusivity.

o Many contractors are reluctant to transfer their
proprietary data to the Government for fear of
disclosure to competitors. Also, many contrac-
tors will not accept Government contracts because
they fear tne disclosure of sensitive technical
data. These fears confirm the need for legis-
lation or regulations that would guarantee the
contractor protection from disclosure. This type
of law would improve the working relationship
between Government and the private sector and
further ennance competitive bidding.

o DOD waives title to 90 percent of Government-
sponsored innovation back to the contractor,
wnile the National Aeronautics and space Admini-
stration and Department of Energy waive 85 percent
and 80 percent, respectively. Most contractors
only request a waiver for inventions with some
commercial value. Tne Government usually files
patent applications for tne remaining inventions,
resulting in a Government patent portfolio witn a
large percentage of patents with no commercial
value. For instance, of the 7,U00 patent applica-
tions filed Dy DOD from 1976 to 1981, about 40
percent are contractor generated and the remain-
ing 60 percent are generated by DOD employees.
Also, 90 percent of the licenses granted are for
employee-generated inventions.

o At present, there is no legislation affecting the
rights to technical data. There is, however,

P.L. 96-517 pertaining to patent rights in small
businesses and universities.

Conclusions

A uniform, clear patent and technical data policy would
stimulate innovation, productivity and commercial use of
Government-funded innovations. It would also reduce the
administrative burden on the agencies and contractors and
increase the willingness of contractors to enter into
Government contracts.

132

Recommendations

Patent Policy Needs The Task Force supports the
following recommendations on patent policy;

o Support the Schmitt Bill. However, should the
Schmitt Bill not pass, the 1971 Presidential
Statement on Patent Policy snould be revised to
require agencies, where not precluded by law, to
give the first option to ownership of inventions
made in performance of a Government contract .to
the inventing contractor.

o Support a policy of defensive patent or defensive
publication in lieu of a regular patent. This
policy would require the agency to state clearly
whether it will file a defensive patent or defen-
sive puDlication or a regular patent application.
,If the agency elects to file a regular' patent
"application, the invention should be subjected to
a coordinated screening process to determine its
commercial value.

o The screening process should be coordinated with
a licensing program. Government licensing should
be consolidated into a single agency. The single
agency should also have primary responsibility
for transferring that tecnnology to the private
sector.

o Inventions should be classified in a catalog
cased on field of technology.

Tecnnical Data — For technical data matters," the Task
Force recommends tne following:

o Data developed completely at private expense

confers on tne Government limited rights to the
data. The Government should not release that
data to a third party under FOIA.

o Contractors snould maintain rights to background
data developed by the contractor at the contrac-
tor's expense prior to entering into a Government
contract. The Government should have specific
rights to all other data. If background informa-
tion is turned over to the Government, it must be
treated as limited rights data.

Q Contractors should retain all commercial rights
to all data first produced under Government
contract. The Government would have a license
for limited purposes such as reprocurement.

133

evaluation and similar needs. This data should
not be disclosed without having a specific
Government purpose or without the agreement of
the contractor.

Savings and Impact Analysis

A policy of defensive patent filing or defensive publi-
cation would:

o decrease the number of useless patents in the
Government portfolio;

o reduce the related cost of filing patent appli-
cations;

o reduce tne burden in the patent office as required
by agency filing; and

o provide the same defensive protection as a regular
application.

Consolidation of Government licensing in a single
agency would prevent fragmentation and inconsistency in the
licensing process.

Passage of the Scnmitt Bill would vest title to Govern-
ment-sponsored R&D in the major contractors, thereby enhanc-
ing tne relationship oetween Government and major contrac-
tors. It would also stimulate the commercialization of
innovation (P.L. 96-517 gives small businesses and univer-
sities title to Government-sponsored innovation and nas been
well received by the parties involved). Also, the number
of inventions reported by these contractors has increased
significantly.

Contrary to FOIA, the Government should not disclose to
third parties data developed solely at private expense.
Confidentiality would (a) encourage inventors to share their
information with the Government; (b) maxe more innovation
availaole to the Government; and (c) significantly encourage
competitive oidding. At present, many contractors refuse to
enter into Government contracts for fear of tne Government's
disclosure of sensitive proprietary data.

Implementation

The above recommendations can be implemented through
legislation (Schmitt Bill), through a revised Presidential
statement on patent policy, and through a Presidential
statement on rignts in technical data.

134

IV. COST CONTROL OPPORTUNITIES FOR FURTHER STUDY (CONT D)

B. MEASURING R&D OUTPUTS

Issue

can research and development (R&D) management in the
Federal Government be strengthened if increased attention
is given to developing and employing quantitative measures
of R&D performance?

The lack of sucn measures, particularly in basic and
applied research areas, leads to a lack of precision in
managing R&D. In particular ,. Government science policy
formulation, project selection and program evaluation can
benefit from the increased use of quantitative measures.

While it seems likely that the use of quantitative
performance -measures can make the R&D management process
mlJrefflcient and affective, it is difficult to ascertain
the nature of savings opportunities generated by their use

Background

The history of modern management shows that one of its
outstanding traits has been the attempt to rationalize
decision-making in organizations. Management historians
often identify the origins of modern management with the
turn of the century work of Frederick W. Taylor who, wit"
nis concept of scientific management, attempted to apply
scientific principles to organizing the management pro-
cess. For example, he called for management to collect
data on tne work place, "... recording it, taoulating it,
reducing it in most cases^to rules, laws, and in many cases
to mathematical formulae . "_1/

Tne drive to rationalize management througn quantifi-
cation has met with only limited success in the R&D area.

1/ F.W. Taylor, “The Principles of Scientific Manage-
” ment," in Boone and Bowen (eds.). The Great Writings
in Management and Organizational Behavior (PPG Books,
19BU) , p. 4J. "

135

It nas been applied more successfully to the management of
technology than the management of science. Even within
technology, its effective use has been spotty.

* J

The degree of success or lack of success in applying
quantitative techniques to the management of R&D seems to
be rooted in two factors: the level of uncertainty in an
R&D project and the availability of measures of R&D per-
formance. In the first instance, the higher the level of
certainty associated with a project, the more amenable it
is to quantitative management. Thus, heavily used quan-
titative techniques, such as Program Evaluation and Review
Technique (PERT) and the Criti-cal Path Method (CPM) are
very useful in large scale projects whose tasks can be
accomplished with an established degree of certainty, but
may be of very limited value to more basic research proj-
ects whose outcomes are only vaguely predictable.

With the availability of R&D performance measures, we
find, not surprisingly, a positive correlation between the
availability of quantitative measures of R&D performance
and the extent to which they are employed for R&D manage-
ment purposes. In general, the nearer a project is to the
development end of the spectrum, the more measures there
are that are available. Typically, there are technical
performance indicators (e.g.. How fast does a newly devel-
oped aircraft fly? How far can it travel without refueling?
What is its rate of climb?), or business (or organizational)
performance indicators (e.g.. How much does the new tech-
nology contribute to organizational profitability? To cost
reductions in manufacturing? To increases in labor produc-
tivity? To increases in market share?). In the sciences,
the only readily available performance indicators are those
associated with research publications (e.g., counts of
scientific articles, citations, coauthorships).

Methodology

Interviews were co'nducted with key evaluation people
in several agencies, as well as with some of the central
individuals involved with developing quantitative indica-
tors of scientific and technological effort. Relevant lit-
erature was reviewed.

Findings

Little effort is being made in the Federal Government
to develop and refine quantitative measures of scientific
and technological performance. Only two agencies seem to

136

have made an explicit commitment to encouraging their de-
velopment: the National Science Foundation (NSF) and the

National Institutes of Health (NIH).

■ ‘Within NSF, the Science Resource Studies Division
(SRS) and the Science Indicators Unit are explicitly
charged with developing and using quantitative indicators.
SRS maintains and collects a wide array of science and
technology (S&T) statistics. It is primarily through its
efforts that we have any idea at all of the quantitative
dimensions of S&T in the U.S. It serves as the principal
repository of data on such things as S&T manpower, employ-
ment, expenditures, and education. In addition to main-
taining and puolishing R&D statistics, SRS supports extra-
mural research designed to more fully exploit existing data
and to push forward the state-of-the-art of indicators
development .

Tne Science Indicators Unit is responsible for pub-
lishing the science Indicators reports every two years.

These reports provide the most comprehensive statistical
summary that exists of U.S. scientific and technological
activity. They also contain a comprehensive chapter on
international indicators. In addition to publishing tne
reports, the' Science Indicators Unit commissions studies on
the strengths and weaknesses of different indicators.

NIH does not have any divisions analogous to SRS or
the Science Indicators Unit. Nonetheless, it has been an
important supporter of indicators development for basic and
applied research. The Program Planning and Evaluation group
in the Director's Office has been supporting the development
of measures of scientific output for over a decade. Indivi-
dual institutes, such as the National Heart, Lung, and Blood
Institute (NHLBI), have also supported efforts to develop^
better science indicators. The reason for substantial NIH
interest in developing good measures of scientific perfor-
mance is a desire to be able to evaluate the outcome of bil-
lions of dollars of biomedical research supported by the
agency each year .

On a much smaller scale than NIH or NSF is tne office
of Technology Assessment and Forcecast (OTAF), which is
trying to develop patent data for the purpose of examining
both domestic and foreign technological events. OTAF has
undertaken a number of- studies tnat identify the most pre-
valent patenting areas in the U.S. today, as well as iden-
tify where foreign firms are making the most significant
technological inroads in the U.S.

All the efforts described here are laudable. The
proDlem is that together they are too small to lead to the

137

development of a true system of interrelated, easily
accessed, detailed R&D statistics. Without such a data
network, it is unlikely that quantitative measures of sci-
entific and technological performance can have widespread
application.

Policy uses of S&T performance indicators can be
substantial . It is inconceivable today that economic
policy would be made without heavy dependence upon analyses
of economic indicators. Rising inventory levels are one
indication that the economy may be entering a recession.
Increased capital spending may suggest that a sick economy
is recovering. Increases in the money supply portend
inflationary pressures, while decreases may contribute to
rising interest rates. Examination of these indicators
gives us some idea of what is happening in the economy
today and may suggest future courses of action.

While it is unlikely that S&T indicators cc^ld ever
assume the significance of economic indicators, it certainly
seems plausible that they could play an important role in
guiding science policy formulation in the U.S. Some of
these indicators are in fact now used as inputs into policy •
formulation, but their use is generally haphazard.

Tnere are two principal ways in which quantitative
indicators of scientific and technological performance can
De very useful in the making of American science policy.
First, they have a purely domestic use, telling us where we
have come from and possioly suggesting where we are going.
Second, they can be important in alerting policymakers to
foreign scientific and technological activity that can have
commercial, foreign policy and military implications.

Domestic Policy Uses of Scientific and Technological
Indicators — If we had a well-developed, comprenensive
body of indicators of national scientific and technological
performance, we could have a good idea of national S&T
capabilities, both in the recent past and at the present
time. This information could serve as a guide suggesting
where we are heading. If we do not like the projected
future directions of S&T, we can implement policies to
modify them.

For example, measures of current enrollments in, say,
university biochemistry programs coupled with information
on the number of biochemists presently employed in the Gov-
ernment, nonprofit, for-profit, and university sectors;
data on published biochemical research; and present

138

research funding levels in biocnemistry can give planners a
very good idea of the potential state of American biochem-
istry efforts five years from now.

Consider also the following concrete example: During

the years following the oil embargo, the Department of
Energy (DOE) and its predecessors focused a great deal of
attention on alternative energy sources. One problem it
faced in managing R&D in alternative energy areas was its
lack of knowledge of who was already doing research in the
target areas, the general dimensions of their efforts, and
the specific contents of ongoing activities. DOE was able
to obtain a good grasp of coal gasification R&D activity by
tabulating information from existing data sources on all
articles, reports, and patents related to coal gasifica-
tion. It was even able to identify R&D activity occurring
overseas. One product of the investigation is presented
here as Exhibit IV-1, on the following page, which shows
the organizations most active in undertaking coal- gasifica-
tion R&D efforts.

Monitoring Foreign Scientific and Technological
Activity — For a long time after World War II, roughly
naif of the world scientific and technological effort was
undertaken in the U.S. Americans dominated world science
and technology like no other country in history. However,
oeginning in the 197Us, it became clear that the absolute
dominance of the Americans was on the wane. It was not so
much that American R.&D capabilities were deteriorating;
rather, the rest of the world was catching up to the U.S.

As a consequence, American products no longer enjoyed the
advantage of being the best engineered products in the
world. This contriouted to a loss of market share in
international markets. In more recent items, high-quality,
low-cost techhology based products have eveh made serious
inroads in the United States marketplace. The automobile
and consumer electronics industries have been particularly
hard hit by techhology-based competitioh from Japah.

Scientific and technological indicators can provide
policymakers with valuable information on foreign S&T
activity abroad, as well as inside the United States. Of
particular value are patent indicators. Anyone monitoring
these indicators in the mid-1960s would have found that
foreign individuals and organizations accounted for only 20
percent of all U.S. patents. Today, however, they account
for 41 percent. Particularly revealing is the fact that 14
percent of U.S. patents are currently held by Japanese
organizations and individuals.

[Exhibit IV-1 .on the following page]

139

Exhibit IV-I

INSTITUTIONS HAVING THE GREATEST NUMBER OF
PUBLICATIONS IN COAL GASIFICATION

Private sector'

No. of Pubs

Institute of Gas Technology
Battelle Columbus Laboratories
Westinghouse Electric Corp.
Bituminous Coal Research
Exxon Research & Engrng.
Consolidation Coal Co.

General Electric Co.

Koppers Company
Parsons Company
Chemical Systems Inc,

University Sector

City College of New YorX
Brignam Young University
West Virginia University
Carnegie-Mellon University
University of Michigan
Pennsylvania State University
Iowa State University
University of Kentucky
Purdue University
University of North Dakota

Government Sector

DOE/ERDA/BM/OCR
Lawrence Livermore Labs
Pittsburgh Energy Research Center
Morgantown Energy Research Center
Oak Ridge National Laboratory
Sandia Laboratories
Laramie Energy Research Center
Argonne National Laboratory
Los. Alamos Science Laboratory
Atomic Energy Commission

140

Exhibit IV-2# on the following page, illustrates the
great level of detail that patent indicators can provide
policymakers regarding foreign patenting in the U.s. it is
a patent profile for the Sony Corporation and shows the
areas in which this company has taken out patents in the
U.S. Inasmuch as Sony does not advertise its technology
strategy in the U.S., this patent profile gives policy-
makers unobtrusive insights into what that technological
strategy might be.

Agencies can use measures of R&D outputs to evaluate
the effectiveness of their programs. In 1982, the Federal
Government spent some !^13.3 billi^ to support basic and
applied research. It is quite difficult to evaluate
whether or not this money was well spent, since the outputs
of scientific research are notoriously hard to evaluate.
Ideally, the output measures would tell us that a given
piece of research resulted in certain tangible benefits.
However, this is rarely the situation; basic and applied
research infrequently have clear-cut, measurable, useful
results .

However, scientific research often results in the
publication of scientific papers which describe the re-
search findings. In recent years, counts of scientific
papers have become an accepted measure of scientific out
put. Universities, for example, have long assessed the
publication productivity of their faculties, especially
when making promotion and tenure decisions the famed
"publish or perish" approach.

While counts of published papers do not tell us any-
thing about the usefulness of research, they do give us an
idea of the degree to which research efforts result in
findings that are deemed worthy of reporting in refereed
journals. Furthermore, we can obtain insights into how
influential (or visible) a given research effort is by see-
ing the extent to which the papers it produces are neavily
cited in the scientific literature. The theory here is
that heavily cited papers are in some sense important,
while poorly cited papers are not. Literature indicators
are imperfect measures of scientific productivity. However,
they at least give research managers some idea or the out

put of research undertakings, and this can be important in
assessing the worth of large and varied research programs.

Exhibit IV— 3 shows one application of using litera-
ture indicators to evaluate the research efforts of Govern-
ment laboratories. The data presented in this table are
heavily aggregated. However, they can be examined at a

[Exhibits IV-2 and IV-3 on following pages]

141

Exhibit IV-2

SONY CORP.
USING U.S.

TECHNOLOGY (PATENT ACTIVITY) PROFILE
FOR YEARS 1971 tO I9aU
PATENT OFFICE CLASSIFICATION SYSTEM

BAR GRAPH OF THE NUMBER OF PATENTS FOR CLASSES
WITH AT LEAST FIVE PATENTS^

«MOt OF PATEKTS

,0« ?00

cussifimtiok

02? CTM. VOmiNO

• PATS

14.00

4,1.

0.79

148 KTM. TREATHEVr

15.00

2.24

ttii

1S« AWES. MW. t «St. CK£I»

5.00

0.41

179 TREPHOm

49.50

4.87

tmsntitm

204 CHEI»..aECT. t E««G

19.00

1.38

ttsn

204 SPtCllt KttPT. Oi PACW6

4.00

0.81

242 HINMNC NO PEaiMC

42.00

4.39

ttttttmtt

307 accT. TWHaiis.oWTCPaiK

54.00

4.99

nttttmtmt

310 EUCT. SENES.t SOTO* STW

8.00

1.25

31J ELECT UV 1 OISCM. PCJiCE

51. OC

7.97

mtmxtmt

315 EIKT U1P 1 DISCH. flCVS.*

41.00

4.44

ttmmtt

318 ELECT iMTU« POWER STSTER

u.oc

2.15

tut

323 ELECTiPOWER SFPLT.REtaU

9.00

4.48

374 a£CT?«£ASU»I« X TI5TUG

13.00

1.39

ttt

32? HEMOULAIORS 1 SETECTORS

11.00

15.18

330 wniFIEK

74.00

20.82

mtmmmtmtt

331 OStllUTORS

19.00

3.32

ttm

332 nOOULRTORS

5.00

4.10

333 WUE TR4WR. LI«S 1 tCTW

11.00

2.42

338 EIECTRICM. RESISTORS

7.«

3.25

340 amVICAT.iEUCTRlCN.

24.00

1.39

mttt

343 COWUWICAT.rRAIIO HAVE

5.00

0.58

350 OPTlCSiSTSTERS 1 aEKEKTS

5.00

0.45

357 ACII« SOllJ state device

358 pictorial COAMAlCAT.f TV
340 OTAARIC AACCr. Ilff. STOR

47.00

230.00

11.25

23.42

ttttttnttttnttt

utttutiuuuttmuiuuttttxuntttutmnuniuuiti

172.50

25.22

intitmitittmtmmmnitttttttttitttt

341 UECT.ELECTR. STSTS. 1 OE

22.00

2.50

tittt

343 aECT POWER C0iA» STSIER

22.00

7.48

itttt

344 aECT COAPUT. 1 BP STSTER

5.00

0.37

34? BTWAAIC INFO. STORAGE OR

53.00

22.18

imtmmst

371 ERROR DETEC/COR t FAULT B

4.00

3.54

428 STOCX HATERIAL OR RISC. A

12.00

0.79

430 RAllATlOH IIMCERT OCR.-P

5.00

0.43

455 TELECOnUtlCATIONS

44.00

14.95

tmtmmttiu

Source; Computer Horizons, Inc., Cherry Hill, N.J.

142

o>-‘ sciomnc papers pwjouL'iB by fu)Kkal ladohatohiks

^ 40

SL37

2.«r

^ VM ^
^ 0
•

!|f

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4J 40

44 W

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^ 44 C

k- 5

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4Q W W

*0 ii.

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as 2 8

a Q J

S44 <N
u • •■^

a> #>n

O 4 >

J <!-»
m V

a 2

S-i 5

41 "3 S s

£ 'X w

= £3r2

4j in £

C 3 3> 41

Si 8 5

04 w

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$ S V) £

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143

disaggregated level as well/ so that it is possible to
determine/ for example/ how many papers are produced by the
Fermi National Laboratory in nuclear and particle physics /
as well as to determine how heavily these papers are cited.

Data such as these must be interpreted very care-
fully. For instance/ the fact that a given weapons lab
does not produce papers that are highly cited does not mean
that it is not adequately meeting its mission. It does
suggest/ however* that the published research it produces
is not very influential in the scientific community.

Exhibit IV-4 shows how literature indicators can be
used to evaluate Government-supported research at the pro-
gram/project level. The exhibit contains actual data used
in comparing two different programs in an agency. Each
program is multidisciplinary/ supporting a wide range of
extramural projects. • As the exhibit shows/ the literature
indicators for Program A are consistently stronger than for
Program B/ confirming the general consensus in the agency
that Program A is scientifically stronger than Program B.

There are many additional ways in which literature
indicators can be used for evaluative purposes. As output
indicators/ they can be compared to input indicators (e.g.,
funds, manpower) to come up with a measure of R&D effi-
ciency. They can be used to model the entire Government-
supported research system to determine, for example, the
effects of funding cuts on immunology research in oncology.

Conclusions

Measures of R&o can serve a useful purpose in both
science policy formulation and the management of R&D at the
program/project level. A review of the uses of economic
indicators in business and Government planning and evalua-
-tion suggests that a well-developed, comprehensive body of
R&D indicators may be able to serve many varied and impor-
tant functions.

Tne utility of R&D indicators has been realized only
in recent years with the computerization of many R&D
related data files. In particular, the computerization of
scientific and engineering indexes/abstracts , library hold-
ings, bibliographies, as well as the computerization of the
U.S. patent files, has provided planners and evaluators
with useful measures of R&D outputs. Yet many data files

[Exhibit IV-4 on following page]

144

Exhibit IV~4

[;

QUANTITATIVE COMPARISON OF TWO
multidisciplinary PROGRAMS

Age

Years since degree

Program A
46.5
19.4

Program B
47.8
17.6

EDUCATION

Ph .d/d. Sc
M.D. ,1
Pn.D./M.D.

M . S .

87.3%

9.4

1.1

2.2

95.6%

2.2

0.0

2.2

PUBLICATIONS/ YEAR/SCIENTIST

Life Sciences
Physical Sciences
Social Sciences
Engineering Sciences
Agriculture Sciences

3.22

2.82

2.21

1.63

1.00

0.57

1.89

0..93

2.19

1.63

Source: J.D. Frame, -guantitative Indicators for Evalua-

tion of Basic Research Programs/Pro^ects , IEEE
Transactions on Engiheering Managemeht, vol. 30
(August 1983).

145

of potential value have not been exploited. For example,
in order to get a better quantitative grasp of DOD sup-
ported R&D activities, computerized project files can be
tapped to generate R&D measures (e.g., the Defense Documen-
tation Center's Work Unit Information system can be em-
ployed). Similarly, DOS's RECON information system can
serve to generate indicators of R&D effort in energy areas.

A budget of $44.3 billion is inherently difficult to
manage. If budget allocations, R&D plans, evaluations of
activities, etc. are made primarily on a subjective,
tative basis, it is certain that the R&D system will be
filled with inefficiencies. To the extent that valid,
reliable and useful measures of R&D activity can be devel-
oped, the management process will be strengthened.

Recommendations

Investigate the state-of-the-art in R&D indicators
develo^nt with "a view to determining how these indic^.tors
can be employed to strengthen Federal management of R&D
activities .

Support development of a comprehensive system of R&D
indicators. Tne system should be roughly modeled ^fter^the
existing system of economic indicators. Attention should
focus on developing indicators at a fine level of detail.
The system should be able to answer questions such as: How

many molecular biologists work in the private sector. How
many undergraduate students are enrolled in electrical
engineering programs? What Government laboratories are
most active in superconductivity research? How productive
are scientists working in NHLBI labs in comparison with
researchers in leading medical school cardiology depart-
ments? To wnat extent do French scientists have a lead
over American scientists in breeder reactor technology.

Savings and Impact Analysis

The principal impact of instituting a comprehensive
system of quantitative R&D measures would be to strengthen
management of the multi-billion dollar Federal R&D effort.
At the very least, such a system would give Government R&D
managers and policymakers a fairly precise idea of the
dimensions of R&D in the United States. As would

help Government to improve control over its R&D inventory.
At best, such a system would give policymakers and managers
the ability to fine tune the management of Federal R&D
efforts. Unfortunately, it is very difficult
tne level of cost savings that such a system would realize.

*U.S.G0VER!MEJ:T KRINTIKC office : 1984 0-421-

146

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